Categories Consumer, Earnings Call Transcripts

The Boston Beer Company Inc (SAM) Q1 2022 Earnings Call Transcript

SAM Earnings Call - Final Transcript

The Boston Beer Company Inc (NYSE:SAM) Q1 2022 Earnings Call dated Apr. 21, 2022.

Corporate Participants:

Michael G. Andrews — Associate General Counsel & Corporate Secretary

C. James Koch — Chairman and Founder

David A. Burwick — President and Chief Executive Officer

Frank H. Smalla — Treasurer and Chief Financial Officer

Analysts:

Nadine Sarwat — Bernstein — Analyst

Kevin Grundy — Jefferies — Analyst

Vivien Azer — Cowen — Analyst

Kaumil Gajrawala — Credit Suisse — Analyst

Rob Ottenstein — Evercore — Analyst

Steve Powers — Deutsche Bank — Analyst

Eric Serotta — Morgan Stanley — Analyst

Bonnie Herzog — Goldman Sachs — Analyst

Laurent Grandet — Guggenheim — Analyst

Brett Cooper — Consumer Edge Research — Analyst

Presentation:

Operator

Greetings and welcome to The Boston Beer Company’s First Quarter 2022 Earnings Conference Call. [Operator Instructions]

I would now like to turn this conference over to your host, Mr. Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you sir, you may begin.

Michael G. Andrews — Associate General Counsel & Corporate Secretary

Thank you. Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of The Boston Beer Company. I’m pleased to kick off our 2022 first quarter earnings call. Joining the call from Boston Beer are Jim Koch, Founder and Chairman; Dave Burwick, our CEO; and Frank Smalla, our CFO.

Before we discuss our business, I’ll start with our disclaimer. As we stated in our earnings release, some of the information we discuss and that may come up on this call reflect the company’s or management’s expectations or predictions of the future. Such predictions are forward-looking statements. It’s important to note that the company’s actual results could differ materially from those projected in the 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-K. 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 it over to Jim for some introductory comments.

C. James Koch — Chairman and Founder

Thanks, Mike. I’ll begin my remarks this afternoon with a few introductory comments and then I’ll hand it over to Dave who will provide an overview of our business. Dave will then turn the call over to Frank who will focus on the financial details of our first quarter results as well as our outlook for the remainder of 2022. Immediately following Frank’s comments, we’ll open the line for questions.

As you may recall, our first quarter 2021 depletions growth was 48% and shipments growth was 60%. So as we anticipated during our last earnings call, our first quarter 2022 volume performance faced a heavy comparative challenge. Our first quarter depletions decline was 7%. This was the first quarter in the last 16 quarters that we did not grow our volume double digits over the corresponding prior-year quarter. This reflects both our own slow 2022 start and a decline in the overall beer market, more particularly the decline reflects our internal supply chain issues that continued into 2022, but also the continuing broad scale supply chain issues and inflation that are affecting consumer purchases and the weakness of hard sell-through demand as the category lapped 62% growth from the first quarter in 2021.

We continue to work through challenges with our supply chain and the impacts of the slowdown in Hard Seltzer as we invest broadly across our portfolio, while adding new innovation. The out-of-stock issues that negatively affected our first quarter performance and which we discussed at our last earnings call have improved during the quarter and wholesaler service and inventory levels are gradually returning to more normal levels. Despite our depletions decline, we gained dollar share in measured off-premise channels from 4.9% to 5.1% in the first quarter, the second largest share gain among the larger brewers.

We are thankful to our outstanding coworkers, our distributors and our retailers who continue to support our business. We have a strong ability to innovate in a broad portfolio of healthy brands and we continue to expect that our business will recover and grow volume, between 4% and 10% for the full year in 2022.

I will now pass it over to Dave for a more detailed overview of our business.

David A. Burwick — President and Chief Executive Officer

Thanks, Jim and good evening everybody. Our 7% Q1 depletions decline that headlines our earnings release has been seen — has to be seen against our exceptional performance in the first quarter of 2021, but it masks the fact that our Q1 performance was in line with our internal targets for depletions, shipments and financials. As Jim mentioned, despite our depletions declines, we still gained dollar share of total beer. While our first quarter declines were not unexpected, they are not reflective of the trends we see for the full year. We expect depletion and shipment volumes to improve both in absolute terms and against less difficult prior year volume comparisons and we also expect margins to increase as our supply chain performance slowly improves.

We continue to see the year delivering as we expected in February and are maintaining our full year guidance. As we look towards the remainder of 2022 and beyond, our aim is to get back to company-wide mid-single digit to double-digit depletions growth driven by broad-based growth across our entire portfolio of brands, especially as consumers drink more Beyond Beer products. We continue to hold our number two position in Beyond Beer with a 24.5 share driven by the number one FMB and Twisted Tea, the strong Number two Hard Seltzer and Truly and the Number one Hard Cider and Angry Orchard.

Prior to 2022, Truly outgrew the Hard Seltzer category for 17 straight months ending in December 2021. It grew depletions by 27% for the full year 2021 and gained almost 4 volume share points. However, in the first quarter 2022, Truly declined 15% in volume and 10% in dollar sales in measured off-premise channels and lost share. These negative results were due to the early out of stocks we discussed at our last earnings call and the comparisons with Truly significant volume growth of 109% in measured off-premise channels in the first quarter of 2021. While Truly lost about 2 share points versus year ago in the first quarter of 2022, it’s week-to-week sequential share has held steady since early January at around 26 points. Also, based on current feedback from our off-premise customers, we believe the Truly share of space will increase in 2022 from about 23% to 26% of the Hard Seltzer category.

Despite Hard Seltzer dollar sales declining by 3% in the first quarter of 2022 in measured off-premise channels, we believe Hard Seltzers remain an important beer industry category in the future. They maintain a large consumer base with 29% household penetration over the last 52 weeks and they were 9.3% of total beer dollars in the first quarter of 2022, equal to a year ago. And according to numerator Hard Seltzers are still net-sourcing volume from 19 of the top 20 beverage alcohol categories with only a slight loss to RTD can cocktails. Numerator data also shows that only 2% of labs Hard Seltzer shopper’s purchase RTD can cocktails in Q1, indicating that RTD Spirits are not taking much share from Hard Seltzers.

Lastly, we see consumer attitudes remaining quite positive. Overall consumer sentiment as measured by online organic conversation is strong as the volume of positive conversations was 2 times that of negative ones in the first quarter of 2022. As we look at our forecast for Hard Seltzer category growth for the year, we’re holding to the scenario previously discussed that puts category volume growth between flat to plus 10%. Remember we’re lapping 62% category volume growth in measured channels from the first quarter of 2021 and as overlaps seize Hard Seltzer grew only 5% in the last three quarters of 2021. We expect to see Hard Seltzer growth rebound to positive. However, full clarity will probably not increase until we start to lap July 2021 when the category growth started to decelerate rapidly, especially in the two-year volumes stack. Regardless of where the category growth settles in 2022, our goal is to outgrow the category for the full year, driven by innovation, continued brand building and superior distributor support and retail execution.

Our confidence that we can outgrow the category is supported by our ability to innovate. Our new Truly Margarita is the most successful new product launch thus far in 2022, as it’s the number one new SKU in all of beer with a 4.6 volume share and a $4.4 share of hard seltzer and measured off-premise channels year-to-date. Truly Margarita also has the highest repeat rate efforts first 13 weeks of any new entrant ever in Hard Seltzer according to numerator. Truly remains a healthy brand and our trends will improve later in the year as innovations take hold and overlaps get much easier. We’re excited about the Truly Poolside variety pack which is launching next month as well as our planned promotional activity around the [Indecipherable] in our new Truly media campaign Do it for the Flavor, which launched late in the first quarter.

In addition to Truly Margarita and the Truly Poolside summer offering, we’re announcing today that later in the summer we’ll launch Truly Vodka Seltzer, a new ready to drink seltzer with 110 calories and 5% ABV, which we believe will effectively compete in the high end of the Hard Seltzer category. Also Truly Flavored Vodka, a bottle of Vodka that recently launched via our Beam Suntory partnership is generating strong marketplace excitement and social media buzz. We believe this validates our decision to offer the Truly Vodka Seltzer RTD as a complementary companion to our Truly Hard Seltzer business, having a broad-based platform as a traditional spirits brand via Beam distribution network and as an RTD that rolls through our own beer distributors, provides the brand broad reach in a competitive advantage.

Despite service level issues that continued into the first quarter Twisted Tea expanded its position as the number one FMB and grew double-digits and measured off-premise channels. It’s the fastest growing brand among the top 20 brands in the first quarter at 15% volume growth and 20% dollar growth. In fact Twisted Tea has been the fastest growing brand among the top 20 in all of beer for the past seven straight months. This is despite many competitive offerings entering the market and is a testament to the brands strong following and the upside that remains as we closed distribution gaps across the country. Based on this performance and historical under spacing, we expect that Twisted Tea in 2022 will be increasing its space by approximately 13% in both large and small format stores, an increase in its points of distribution by approximately 19% percent in large format and 67% in small format. We are now advertising the brand year round to increase brand awareness and recently launched new summer theme media spots earlier this month, featuring real fans, having real fun in the latest iteration of the brands tea drop campaign.

In the first quarter our Samuel Adams brand had strong seasonal performance driven by cold snap. Overall the Sam Adams brand depletions in the first quarter were flat, which allowed the brand to continue to gain share in a slowing market for craft beer, supported by the Cousin from Boston ad campaign in our successful Super Bowl spot featuring the robots from Boston Dynamics which placed number one on the System One list of Best Super Bowl commercials this year and received 2 billion earned media impressions and more than $18 million in ad value equivalency, we expect that Sam Adams brand will consistently gain share in the coming months.

Meanwhile, Angry Orchard remains the number one brand in hard cider with a 48 share in this segment in measured off-premise channels. Angry Orchard Crisp continued to show positive growth despite total Angry Orchard brand depletions being slightly down for the quarter. Total Dogfish Head brand depletions in the first quarter declined against a difficult beer market. However, our expanded lineup of award-winning Dogfish Head can cocktails including the new vodka and gin crush styles and Burkhardt variety pack grew triple digits in the first quarter off a relatively small base. In the first three states where it’s been launched, Hard Mountain Dew is showing significant promise for the 27 share of FMB and measured off-premise channels where its distributed in those markets. We recently added two additional states and we’ll continue to roll the brand out to approximately 13 new states over the next several months.

In early 2022 we had out of stocks on certain brands and packages as our supply chain was not flexible enough to react to changes in demand. We believe we have the capacity in place and our resolving these issues quickly and during the course of the first quarter, we improved inventory levels and reduced our out of stocks. We also added more West Coast capacity for the Truly brand that will continue to ramp up over the summer and improve service levels for our West Coast customers. Our costs continue to be negatively impacted by inflation pressures, but despite these impacts, we believe our margins will show improvement during the year as our supply chain performance continues to get better.

Our depletion and shipment trends for the first 16 weeks of 2022 have declined 6% and 23% respectively from the comparable period in 2021, due primarily to the extremely strong 2021 Truly shipments and depletions in the first quarter 2022 out of stocks. We believe our plan to increase our number two position in Beyond Beer is on track as our highly relevant portfolio of brands and strong innovation pipeline is well situated to address consumers changing preferences. Our challenge is execution and achieving the portfolios potential as we enter the summer selling season.

Now I’m going to hand it over to Frank to discuss first quarter financials as well as our outlook for the remainder of 2022.

Frank H. Smalla — Treasurer and Chief Financial Officer

All right, thank you, Dave. Good afternoon, everyone. For the first quarter, we reported a net loss of $2 million or $0.16 per diluted share, compared to net income of $65.6 million or $5.26 per diluted share in the first quarter of 2021. This change between periods was primarily driven by lower net revenue and lower gross margins. Our operating expenses of $175.1 million in the first quarter of 2022 increased 1.2% from the prior year.

Depletions for the quarter decreased 7% from the prior year, reflecting decreases in our Truly Hard Seltzer, Angry Orchard and Dogfish Head brands, partially offset by increases in our Twisted Tea brand. Our Samuel Adams brand depletion volume was roughly equal in both periods. Shipment volume for the quarter was approximately 1.7 million barrels, a 25% decrease from the prior year due to lower depletions, continued inventory level normalization and the lapping of the 2021 inventory pre-build reflecting decreases in our Truly Hard Seltzer, Twisted Tea, Angry Orchard and Dogfish Head brands, partially offset by increases in our Samuel Adams brand.

We believe distributor inventory as of March 26, 2022 averaged approximately five weeks on hand, and was an appropriate level for each of our brands. We expect distributors will keep inventory levels below 2021 levels in terms of weeks on hand as the need for peak season inventory pre-build is greatly reduced due to our increased production capacity.

Our first quarter 2022 gross margin of 40.2% decreased from the 45.8% margin realized in the first quarter of 2021, primarily due to higher supply chain costs and higher materials costs, partially offset by price increases. Advertising promotional and selling expenses for the first quarter of 2022 decreased $10.2 million or 7.3% from the first quarter of 2021, primarily due to a net decrease in brand investments of $9.4 million, mainly driven by lower media costs, partially offset by higher investments in local marketing and decreased freight to distributors of $0.8 million, primarily due to lower volumes that were partially offset by higher rates.

General and administrative expenses increased by $7.8 million or 24.3% from the first quarter of 2021, primarily due to increased salaries and benefits costs and increases in services provided by third parties. We recorded an expense of $4.8 million in contract termination costs in the first quarter of 2022 resulting from further negotiations with suppliers that eliminated future shortfall fees. Based on information of which we are currently aware, we continue to target full year 2022 earnings per diluted share of between $11 and $16. However, actual results could vary significantly from this target. This projection excludes the impact of ASU 2016-09 and is highly sensitive to changes in volume projections, particularly related to the Hard Seltzer category and supply chain performance as well as inflationary impacts that have accelerated since we provided our last guidance. The 2022 fiscal year includes 53 weeks compared to the 2021 fiscal year, which included only 52 weeks.

Full year 2022 depletions and shipments growth is estimated to be between 4% and 10%. In the first quarter, total depletions declined 7% compared to the first quarter of 2021 and increased 38% compared to the first quarter of 2020 in order to achieve the midpoint of our depletions range we’re estimating depletions for the remainder of the year will increase 10% compared to the last nine months of 2021 and increase 29% compared to the last nine months of 2020. We project increases in revenue per barrel of between 3% and 5%. Full year 2022 gross margins are expected to be between 45% and 48%. Our full-year 2022 investments in advertising promotional and selling expenses are expected to increase between zero and $20 million. This does not include any increases in freight costs for the shipment of products to our distributors.

We estimate our full-year 2022 non-GAAP effective tax rate to be approximately 26%, excluding the impact of ASU 2016-09. We are not able to provide forward guidance on the impact that ASU 2016-09 will have on our 2022 financial statements and full-year effective tax rate, as this will mainly depend upon unpredictable future events including the timing and value realized upon the exercise of stock options versus the fair value when those options were granted.

We are continuing to evaluate 2022 capital expenditures and currently estimate investments of between $140 million and $190 million. The capital will be mostly spend on continued investments in our breweries and could be higher if deemed necessary to meet future growth. We expect that our cash balance of $15.8 million as of March 26, 2022 along with our future operating cash flow and unused line of credit of $135 million will be sufficient to fund future cash requirements.

We will now open up the call for questions.

Questions and Answers:

Operator

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes the line of Nadine Sarwat with Bernstein. You may proceed with your question.

Nadine Sarwat — Bernstein — Analyst

Hi, everybody. Thank you for taking my question. I’d like to zoom in on the gross margins. So can you provide some color on the higher supply chain costs that you faced in Q1? And then thinking longer term, what gives you confidence that the supply chain performance will improve enough during the year to meet your gross margin guidance?

Frank H. Smalla — Treasurer and Chief Financial Officer

Okay. Hi Nadine. This is Frank. Let me speak to the gross margin. Clearly, the gross margin at just over 40% in the first quarter was lower than what we had as a target of 45% to 48% and they are very clear drivers. We had indicated Q1 will be a difficult quarter because we still have some hangover from the 2021 event. So we had a really, really high stock level as the categories slowed down and that manifests itself in lower absorption, we have lower volume going through the breweries, scrap that is higher because the supply chain is still little clogged up. We’re making progress in bringing this all down and then higher warehousing costs. And then we had like an unfavorable mix also between products. So when you look at our inventory, we had a high level of inventory, but there was a combination of SKUs that we had too much another SKUs where we didn’t have enough. And you combine that with our supply chain difficulties that we had, that just resulted in higher costs. We also had some — and that’s temporary some higher freight cost for some material deliveries that we had to bring in the first quarter and that will subside in the remaining quarters.

And then also the structural supply chain cost improvements that we’re working on, they have been a little bit delayed because we are focused on the cleanup of the events from 2021. So they are coming, but they’re coming a little [Technical Issues] our West Coast facility relatively close to our internal costs. So the variety pay costs that we will incur going forward will be on average, significantly lower than what we had incurred in the first quarter. So — and then we will have further supply chain cost initiatives that are driving cost down during the remainder of the year. So that’s a little bit the imbalance between Q1 and the remainder of the year.

Nadine Sarwat — Bernstein — Analyst

Understood. So would it be fair to say that you still believe you can hit guidance based purely on initiatives that are in your control as opposed to more favorable input costs later in the year?

Frank H. Smalla — Treasurer and Chief Financial Officer

Yes, that is fair. I mean we were, as everybody else, we have higher input costs, clearly compared to what we had in the last earnings call, but we are managing those and that should not significant — at least at this point, we don’t see that this is significantly impacting our margin. So, yes, it’s the activities that under our control that should improve the supply chain cost and as such, the gross margin.

Nadine Sarwat — Bernstein — Analyst

Understood. Thank you. I’ll pass it over.

Operator

Our next question comes from the line of Kevin Grundy with Jefferies. You may proceed with your question.

Kevin Grundy — Jefferies — Analyst

Thanks. Good evening, everyone. Two questions from me if I could. The first for Dave just on the on-premise. Maybe talk a little bit about how that channel is recovering, maybe you can sort of give us some guide posts for where your on-premise business is currently versus pre-pandemic levels? And then maybe something we haven’t talked about but was certainly an area of a lot of interest I would say last year was the development of Hard Seltzers in the on-premise channel and what that opportunity was? Maybe you could just spend a moment on that and how much time the organization is focusing on that development. And then I have a follow-up for Frank. Thanks.

David A. Burwick — President and Chief Executive Officer

Sure. Hey Kevin. So I think, starting in the first quarter was a very good quarter for on-premise. So I’m not sure we don’t break it out specifically, but it was — if you look at the [Indecipherable] says it was like in the 30s for across the industry. I’d say we’re north of that. So remember, this first quarter was the last kind of free pass for on-premise where the overlaps were pretty good from a year ago, but it’s come back as I mentioned earlier, if you look at the off-premise trends for Sam Adams or Angry Orchard it’s very different when you look at the total volume and certainly on-premise is contributing significantly. So it is coming back. If you look at the on-premise share, again I’ll quote to BI. If you look at the on-premise share of total, traditionally pre-COVID was around 16% and right now it’s hovering around 13%. So the share has shifted down, the question is whether we will know the summer if it really comes back to the historical level, but we are seeing — we’re definitely seeing growth in on-premise across the board pretty strongly in the first quarter.

As it relates to Truly, Truly is hanging in there, I mean we’ve got, first of all, we have about — let’s talk about draft first. We’ve go 4,200 placements for Truly draft. The sales per point in the first quarter was up 35%. It’s point the same rate as Boston Lager. So we’re seeing a nice activity there and so, only about 12% of the total on-premise, the rest are cans. And so it’s in about 1250 Buffalo Wild Wings is in there committed through the end of the year. So we’ll have to wait and see how it goes. But there’s no question, our sales organization is selling and we’re selling draft placements, we’re selling cans. In fact I think we’re only the real, we like the most legitimate national provider of draft for Hard Seltzer and again the volume is there. So we’re looking at that and it’s just one component of the total growth for Truly, it’s certainly something that we’re — we haven’t put a cast aside. We think there’s opportunity there.

Kevin Grundy — Jefferies — Analyst

Okay. And just on the guidance, your expectation Dave, before if I recall was flat to up 10% for the Seltzer category. Is that still your working expectation for the year?

David A. Burwick — President and Chief Executive Officer

Yes. That is the expectation. We’re saying, 0% to 10% for the category and think of it this way, think of it as probably low single-digits on the volume side, high single-digits on the dollar side, but we still think it’s fair to say it’s in that range. Remember, there have been a couple of reasons why, the overall for the Q1 of year ago was 62% for the category. It’s only 5% for the balance of the year, so obviously we talked about it before, the overlaps are pretty extreme. The penetration base is still very high. So we’ve seen the penetration rates have fallen off a bit in the first quarter, but it’s still higher than craft beer about the same as FMB. So there is a large base of consumers that are still interested in buying the category and still Hard Seltzer provides sort of the session ability, the low calories, the flavor variety that consumers are looking for that other categories aren’t providing. So last thing I’d say is that the space is from what we know now, the space for the category is pretty much held. It is pretty much held maybe up just slightly. I think the number of SKUs is probably not going to decrease right away, but the number of brands is. So you’re going to have fewer brand, same number of SKUs and about the same amount of space. You’ve bigger brands, some innovation coming in across the board, people investing. So we think for now given these overlaps and given the auditing of Q1, sticking to 0% to 10% makes sense to us.

Kevin Grundy — Jefferies — Analyst

Got it. Thanks Dave. Just one more if I can and I’ll pass it on. So for Frank, my question is on the cost structure. So it’s not just cost of goods but opex included and is the company appropriately sized now for what’s materially lower growth than what you experience when you were really chasing Seltzer. So we’ve seen this with other businesses and the Staples understandably, where the fixed cost structure just may not be appropriate for what sort of a new normal level of growth. So you’ve talked about the opportunity for this to be a low to mid 50 sort of gross margin business. I’m assuming there’s some level of productivity savings and cost cutting involved there, but even across the other lines in SG&A, do you feel comfortable with where the current cost structure is for the new growth outlook for the business. If not, where are those opportunities and when would investors expect to see those benefits? And I’ll pass it on. Thank you.

Frank H. Smalla — Treasurer and Chief Financial Officer

Yes. So, Kevin, clearly, we’ve talked about the cost structure. Operating expenses is a focus for us and we have added quite a few people in as we have grown. And our operating expenses have grown. our APNS investments and also our G&A expenses. I think we are broadly at the right level. We have staffed up the functions that we needed to staff up, we were lagging a little bit, I think we are at the right level. We do expect to get leverage as we keep on growing the company and we have seen leverage, it’s hard to compare versus ’21 or 2020. I think the last really somewhat normal year was 2019. But we clearly got leverage there. We expect that leverage to continue. It’s also, as we are working on supply chain transformation which actually we are looking at it as a bigger business transformation, that will help us run the company also more efficiently, more effectively and that will also support getting leverage out of the costs. So, and that you should see in the EBIT margin.

Kevin Grundy — Jefferies — Analyst

Okay, thanks for all the time, guys.

Operator

Our next question comes from the line of Vivien Azer with Cowen. You may proceed with your question.

Vivien Azer — Cowen — Analyst

Hi, good afternoon. So my first question… [Speech Overlap] Hey, guys. About the shelf space expansion, I mean it totally makes sense that you shelf base should go from 23% to 26%. I’m just wondering how much of a contributor is that to your full-year top line guidance?

David A. Burwick — President and Chief Executive Officer

Well, I think it’s certainly an enabler to get our innovation on the shelf and get — and be where we need to be. It’s hard to quantify going from 23% to 26% and putting that to what the volume is — will be for growth for Truly relative to the total portfolio, but it’s certainly, it’s important, because I mean, one thing I will say is that we get — we have, last year we finished the year with the second highest penetration rate of any brand in beer next to Bud Light, so which means we have — there is a large willing group of Truly consumers who are looking for innovation from us and having the extra shelf space is really important to get it out there permanently on the shelf so they can find it. So it’s also, I would argue result of our past performance that retailers are awarding us with more space, because not everybody is getting more space, just the category, Hard seltzer category is relative — is basically flat versus a year ago and we were one of the few gainers in space.

Vivien Azer — Cowen — Analyst

Absolutely. That makes sense. On the penetration, but household penetration, now you cited the 29% household penetration metric, which remains encouraging and to your point, the comps are going to get a lot easier as we get through 2022. But I’m curious, have you been monitoring that household penetration with a fair amount of regularity, like if so, can you — do you have any observations on kind of the longitudinal trend that you’ve seen there. How would that 29% compare to a year ago? Any incremental color would be helpful? Thank you.

David A. Burwick — President and Chief Executive Officer

Sure thing. I mean, we look at it, we use numerator data generic since it’s available pretty frequently to us. So that 29% that I quoted is the latest 52 weeks, so that will be Q2 of 2021 through Q1 of 2022. Last year — for the calendar year, last year was also a 29%. If you want to look at it, as I recall and I have the numbers in front of me, but for the first three quarters of last year grew about 8% it did start to slow in the fourth quarter of last year, I think it was minus 2%. The first quarter of this year probably more like minus 8% for — just for that quarter, there was a lot of things going on in that quarter. And — but it has, it’s not going in the right direction, but again we think — I think it’s a little early to call it on where that’s going to end up. We got to see where things come in the next quarter. In particular also the buy rates are going up and the repeat rates are still going up. So, it’s generally holding ground. It’s also if you look at in addition to the household penetration we look at sort of consumer sentiment, I think I referenced it in the — in my script, but if you look at it, I mean people are still out there, organic mentions are positive 2 to 1 to negative comments. So if you add all up, there’s still interest there, it’s a large base. Again, we said at the same size as FMB and it is, we’ll see where it goes over the next few quarters.

Vivien Azer — Cowen — Analyst

Understood. And I’ll just squeeze in one last quick one. I apologize if I missed it in the prepared remarks, the vodka that you guys just announced today. How is that different from the Beam Suntory partnership?

David A. Burwick — President and Chief Executive Officer

Yes, sure thing. So the Beam Suntory one is basically full bottled — block in bottles, like one-liter bottles etc that they are selling through their distribution network. So through their distributors and launched about a month or so ago and we call — it’s called Truly Flavored Vodka. It’s in three different flavors and that’s sort of — their domain and they are basically selling the product. We’re going to create an RTD, so it’s going to be basically, if you think of that is from cans, would you expect some can, RTD Vodka seltzer product under the Truly name That was in a way to think of it as a companion to that vodka products. Similar and — probably similar consumer different occasions, I’d say, than the vodka — the bottle vodka product and definitely different consumers in a Truly seltzer drinker. It’s going to be, if you look at brands like High Noon, which arguably is not as more of a hard seltzer then it is a traditional RTD canned cocktail. The consumer tends to be — over half of the consumers are 45 plus for perspective. The female SKU, African-American SKU, higher income, you look at hard seltzer half of the consumers are 21 to 34. So we see there is a window here and there is a place to go with Truly Vodka seltzer at the high end of hard seltzer with a different consumer. We have traditional Truly Hard Seltzer and then we have the bottled vodka out there as well. And we think together they work really well.

Vivien Azer — Cowen — Analyst

So the Truly Vodka Seltzer will have vodka?

David A. Burwick — President and Chief Executive Officer

I’m sorry, will have what?

C. James Koch — Chairman and Founder

Vodka, yes.

David A. Burwick — President and Chief Executive Officer

Vodka, yes. I’m sorry. I’m very sorry. So the Truly Vodka Seltzer will be with vodka. Yes. And that’s what we’re going to launch during this summer. Yes.

Vivien Azer — Cowen — Analyst

Thank you.

David A. Burwick — President and Chief Executive Officer

Sure thing.

Operator

Our next question comes from the line of Kaumil Gajrawala with Credit Suisse. You may proceed with your question.

Kaumil Gajrawala — Credit Suisse — Analyst

Hi. Can we — maybe if you can drill down a little bit more on your confidence that things will kind of turnaround from where you are year-to-date allowing you to kind of confirm your guidance. Maybe it’s the exit rate on the quarter itself. I know you gave a year-to-date April number, maybe you can give us just April itself. Maybe it’s just comps, but just maybe a little bit more color there on why you expect everything to — or many things to sort of turnaround?

Frank H. Smalla — Treasurer and Chief Financial Officer

Yeah, Kaumil, let me, this is Frank, let me just start with the pure numbers, if you look at depletions and shipments and the way I think you have to look at the quarter and as Dave indicated in his remarks is you have to see that in light of last year’s Q1 where shipments grew 60%, depletions 48%, everybody was fully behind the Hard Seltzer growth across all channels and across all parts of the channel. So the retailers were building, the wholesalers were building. So there was a lot of pipeline building, if you will. So against that we were down 7% and we need to grow — going forward we need to grow like 10%, 11% to hit like the mid point of our range.

If you compare that to the 2020, so if you look at the two year stack, which we use quite a bit, we’ve grown versus — Q1 in 2020, we’ve grown 38% and the year to go would only be have to grow 29%. So that kind of gives you a little perspective, just from the pure numbers, if you look at the two year stack.

Shipments is a very similar story because we also had pre-build and it’s a little bit more pronounced, because we’re pre-building the numbers. We are pre-building a lot of inventory in the first half of the year. As I said Q1 shipments were up 60% if you look at the first half, they were up 41%. And so we produced significantly more than first half, we had more inventory. The category slowdown happened in the middle of the year. We were left with the inventory that we basically didn’t ship a lot anymore and didn’t produce a lot anymore. Q4 was down 25% versus the previous year. So if you just look at — where we’re going from a year we’re pre-build first and then we are reducing our inventory to a more normalized flow, that’s why Q1 was a little bit of an aberration. But those are purely the numbers. But that’s one side of it. And Dave will talk a little bit more like to the programs that we have and that we feel give us confidence from a business perspective.

David A. Burwick — President and Chief Executive Officer

Sure. I was thinking of just to add to what Frank said Kaumil. Let’s just look at, we’ve got a lot of innovation, a lot of activity coming starting right now. So Truly Margarita is out there, we referenced it from what we can tell, it’s about 60% incremental. The repeat rates as I mentioned that they haven’t been repeat rates in the first quarter for any brand and Hard Seltzer is high as Margarita, it’s higher than Lemonade, its higher than Fruit Punch, so that’s — we think that’s on a good trajectory. Then we’re coming in with Poolside which will take us through the summer, which is an LTO for the summer that we feel good about it. Based on what we’ve seen, we think we’re going to have better execution that we did for Fruit Punch last summer.

Then as I referenced, we’ve got — so on the Truly front, we have Vodka Seltzer coming in late summer and when we more news in the fall, all supported by — there has been a more space gains that we’re getting behind the brand. Then you have the brand overlay, with the leap and all the advertising and investment, so there’s a lot ahead of us for Truly that we’ll be facing the lower — the smaller overlaps, but also just a lot of absolute activity behind Truly.

Then you have Twisted Tea, which I know we don’t talk very much about. Twisted Tea is also a big gainer as I mentioned in my opening remarks. From a space perspective, Twisted Tea is always been in people’s mind kind of regional brand or now it’s having its day in the sun. And we have — we’re driving distribution on particularly on 12 packs, we now have national footprint for 12 packs for Twisted Tea. So we can start getting national retailer support and promotions behind it, which we’ve never had before. We’ve also guided that we launched Twisted Tea Light is out there, we’ve got a huge campaign around convenience stores, we have a joint promotion with Doritos as part of our PepsiCo relationships. So there’s a lot of activity behind Truly, that hasn’t even really begun yet. This is going to start hitting in the summer.

Then there is Hard Dew and Hard Dew as I mentioned is only, it’s in three states Iowa, really for about a month. Iowa, Tennessee and Florida, and it’s a 27 share of FMBs in that and then turning about 7 or 8 times the size of the next largest FMB in those states. So I’ll say this with confidence is the highest trial I’ve ever seen ever, ever, and in any — I’ve ever been involved in personally now that the repeat is obviously the key part of it and we’re going to roll, so we’re going to roll from this. We’re now — we added Arkansas and Oklahoma, Minnesota is coming next week. So we’re going to gradually roll to about 15 states before the end of the summer. So just the three — the big three of Truly, Twisted Tea and Hard Dew have really begun to impact our business and I’ll also add to that Dogfish Head canned cocktails, we talked about canned cocktail, it’s obviously in the sending category, still pretty small, but one-sixth, maybe one-seventh of hard seltzer but it’s growing as we all know and Dogfish has a terrific lineup of flavors and products and we’re making a big push on that this summer that’s just beginning right now.

And the last thing I’ll say is if you look at annual Angry Orchard and Sam Adams have always kind of been a drag on the total, you’ve seen enough momentum in those two businesses over the last 12 plus months. So, we feel pretty confident there won’t be a drag and might even be contributors. Sam Adams, Angry Orchard TBD, so you added up over the next four or five months, there’s a lot of — lot coming and we’re just getting really the year as far as I’m concerned it’s just getting going right now. And I think — I know Jim might have — Jim might have something to say on top of what Frank and I just said. Just maybe more about the where we’re in unusual world right now. I’ll let Jim kind of maybe comment on that.

C. James Koch — Chairman and Founder

Yes, sure. I think I would, you’ve got three different voices. I would support data optimism, but I think one has to be realistic on a couple of dimensions, one is just the headwinds that are facing all consumer products companies, there’s obviously the geopolitical problems, the economy is kind of wobbling now and inflation is at extraordinarily high levels. So those are just unpredictable things, but they are things that are more negative now than they were when we did our last earnings call and more negative than we set our guidance of 4% to 10%. So that does — we still believe that’s the right range. But maybe a little less optimistic about hitting the very top of it, just because of these headwinds and we certainly are encouraged by some very strong trends in distribution for Truly and in Hard Mountain Dew but that’s again that’s — it’s got really strong numbers, but we’re talking about three states, a couple of months into a rollout of a very strong and powerful brand that I think we all we’re pretty comfortable would get a lot of trial. And the jury is still out about what the demand is going to look like three, six months into the rollout where we’re beyond the trial curve. So there is, I think, what we’re probably saying is we still very strongly believe that range of 4% to 10% is the right range. If we were at the mid-point of that in February or may be still in that range, but maybe not quite as high just because of the very broad based geopolitical and economic trends. It’s a little bit more on the stable world than it was in the 20th of February.

Kaumil Gajrawala — Credit Suisse — Analyst

That’s useful. Thank you. And if I could follow-up on Sam Adams specifically. Dave towards the end of your comments, I can’t quite remember the last time it was flat or up? Obviously it’s flat in this juncture. I know you talked about the marketing and stuff. But can you maybe talk about what you’re seeing in craft as an industry, I believe some of the struggles for Sam over the years has been the fragmentation, the increased competition, a mix of other sorts of things. Are we potentially on the other side of it after almost eight years of decade or do you point it took more into perhaps just a success of marketing?

David A. Burwick — President and Chief Executive Officer

[Speech Overlap] I would say there is no better person in the room than Jim to talk about that. So go ahead Jim.

C. James Koch — Chairman and Founder

Yes, I mean, I think your formulation of we’re at in the fragmentation is kind of done, it’s not getting more fragmented. So that headwind is kind of abated. I mean it’s — it is where it is. We have some 9,000 breweries in the United States. So you have an extremely competitive market, innovation is much harder in craft when you have 9,000 people looking for the next big thing. Any successful innovation immediately has a thousand duplicate out there. I think what is contributing to — we’re pretty much stable in a declining craft market. I mean craft is now a mature industry. It’s a sizable piece. The beer business here in the United States and it appears to have roughly found its level. And so in that kind of situation it begins to be sort of grind it out battle where the competitors that have the most and best resources and talent and products can slowly begin to gain share in this more mature stable, maybe slightly growing maybe not, over the last few years. We have all of the benefits of the largest player in terms of scale retailer appreciation, wholesaler support and we can do things that are not available to many of our craft colleagues like have a Super Bowl ad that gets 2 billion impressions or like have national presence and be able to go to the national teams and get draft distribution all across the country. So my sense, what’s behind us beginning to gain share at least is just these advantages of 30 some years of doing this, having grown to leading craft brewer and the scale that we bring with that and a broad based consumer retailer and wholesaler acceptance and support.

Kaumil Gajrawala — Credit Suisse — Analyst

Awesome. Thank you.

Operator

Our next question comes from the line of Rob Ottenstein with Evercore. You may proceed with your question.

Rob Ottenstein — Evercore — Analyst

Great. Thank you very much. A couple of questions. First, you talked a bit earlier on about the on-premise coming back. And — but that was more in terms of the overall market. Can you talk — can you give us any metrics in terms of how your on-premise business is doing, maybe the number of tap handles versus 2019 or whatever metrics you think are relevant as you assess your recovery in that channel? And then maybe perhaps tied to that, any changes in strategy approaching that channel that you’re putting in this year that may be different than the past?

David A. Burwick — President and Chief Executive Officer

Sure thing, Rob. Jim, do you want to jump on that. You want me to start it.

C. James Koch — Chairman and Founder

Why don’t you go ahead with it Dave?

David A. Burwick — President and Chief Executive Officer

Yes, Let me share you, I’ll start because I think, first of all, we’re seeing across the board trend improvements for all of our core brands, in Q1. So I referenced the Beer Institute had 31% growth in on-premise for the first quarter, for the industry where like 50% more than that. So while we’re high 40%. So we’re seeing that, we’re seeing it, we’re seeing points — obviously points distribution being regained, processing sales per point increasing as well. So it’s, in particularly for brands like Angry Orchard where that’s, Angry Orchard Crisp on draft is a really important one for us. Sam Seasonal, Boston Lager etc. So in Q1 it’s been a very good start for us. I think and as I mentioned for Truly we just not quite sure where Truly on draft goes, but it seems to be doing kind of have been in flowing, but it’s on the uptick right now particularly sales per point which I mentioned before, and obviously Truly cans are doing well. I think it’s just we do have and Jim can speak to it, because he created it.

We do have a terrific sales — on-premise sales organization. They have been in hibernation off of a bit, against their will during COVID and we’re out selling, aggressively we’re out selling and we have a really good lineup. I think another, the next frontier might also be Beyond Beer and on-premise so we talked about Seltzer, Twisted Tea, I think only maybe 3% or 4% of Twisted Tea’s volume is in on-premise, but that’s an opportunity for us as well to pursue that, and there’s a lot of customers interested in that. So we’re selling shoes on and we’re pushing that channel hard. And so far this year, remember the overlaps, to be fair, the overlaps, I know exactly what they were a year ago, but they are probably kind to us, given that things really didn’t start to open up on-premise last year to say May or June. And Robert I think that answers your questions fully or maybe…

Rob Ottenstein — Evercore — Analyst

Well, I mean, yes, I mean, you’re gaining share right now, and that’s great. How does your business or your share or however you measure it compare to what it would have been in 2019? So I mean did you lose more than average during COVID? I’m just trying to get a sense of where you are versus 2019?

David A. Burwick — President and Chief Executive Officer

Well, I would say in terms of our percent of mix is still lower than it was in 2019. So we’re probably still — we’re still below where we were in 2019 to be fair and which is probably where the industry is as well. As I mentioned, the industry is 16% mix and pre-COVID now it’s around 13%. We’re point below our mix from where we were in the question is really with changes now, what’s the new normal. We’ve been waiting to find out what the new normal is for everything from hard seltzer to on-premise for the last two years. I think this summer will determine where we end up. I would just say that we’re — in terms of the climb back to where we were, we like the trend that we’re on. We’re not sure where it’s going to end. I think inflation is going to have an impact on on-premise. I mean it’s going to have a lingering impact on whether the people go out to eat or not. We’re not quite sure where that’s going to end up. We’re hopeful that it just — the on-premise channel which is a big critical channel for us continues to rebound. And Jim I don’t know if you have any other broader thoughts on on-premise. I think you’ve seen it from the beginning.

C. James Koch — Chairman and Founder

I guess I’d say, my guess is that COVID has changed habit probably permanently. I think, I don’t think the on-premise is going to come back to the same levels that it was in 2019 and partly because consumers have changed habits and partly because there are bars and restaurants that went out of business and they closed and they’re probably not going to be all replaced. So — and which we’ve been seeing that in the data for a little while that the throughput per account is back to where it was even above it. But there is maybe 20% fewer accounts. So I don’t think all of that 20% of lost accounts is going to come back. And as a result, I’m going to guess that we’re not going to get to the 2019 percent of the business in on-premise, most of the lost accounts will be the smaller independent accounts. Those are generally favorable for craft beer for Sam Adams where a little stronger in the bigger national accounts, the multi-store accounts. So for us we may gain a little bit of draft share because of that mix shift within the account base.

Rob Ottenstein — Evercore — Analyst

Great and then one other question and that is in the non-alcoholic beer space and call it non-alcoholic adult beverages, if you will, in general, that does seem to be one sector of the industry that is growing. There is some good products out there. The technology seems to be better than 10 years ago, five years ago. You’ve got an entry. Love to get your thoughts on how big that business can be, what your research is telling you in terms of bringing in new drinkers into your space or is it pretty much the same drinkers but instead of having 3 or X number alcoholic drinks they end off with an NA. Just love to get your thoughts Jim on that sector?

C. James Koch — Chairman and Founder

Sure. One of the things that I think is favorable to us and similarly favorable to the entire beer business is, to the extent that NA versions of traditional alcoholic beverages get traction that’s skews volume to non-alcoholic beer. Non-alcoholic beer, I mean it can taste like the real beer and it has a reason to exist, whereas what’s the point of non-alcoholic vodka, if it’s just a non-secular, it’s Poland Springs. So you’re not going to pay money for a lot of the non-alcoholic wines and spirits. I mean, you just don’t see successful products in those categories. So it’s going to the extent it gets consumer acceptance to have a non-alcoholic substitute for traditional alcoholic beverage, it’s going to be a non-alcoholic beer. How big it gets? I really don’t know. Now, it’s pretty small, probably less than 1% of total beer, I haven’t really looked at the numbers, and but it is kind of entering the mainstream a little bit more, particularly with younger drinkers. So the NA drinker, three, four years ago NA was kind of things like old doodles that didn’t get a lot of attention, didn’t have a lot of — they didn’t really taste that great, and they were primarily consumed by older drinkers, who ex-alcoholics or people that just didn’t want to drink a real beer. The demographic is and they were cheap and that’s changed. The growth is that the premium end with some — and the products are quite good. Heineken 00 is a really good tasting beer. We think Sam Adams just haze and Dogfresh Head Lemon quest are and we know from blind tasting with consumers. They get rated just as high as the alcoholic version that they originated from. And they are priced at the same price as a craft beer or an imported in Heineken’s case. So this is an upscale occasion. It’s an upscale drinker. The old NA beers and drinkers have been replaced by younger drinkers with all the demographic and societal things of moderation, drink less alcohol but still wanting to socialize. It’s a new dynamic for NA beer and your guess is as good as mine. I mean they are developed countries where as you know NA beers are a significant part of the volume up to 10% in some places, in Europe and 3% or 4% or 5% in places like Germany. Will they get there in the US? I just don’t know. All I can say is, we believe we have one of, if not the best tasting entry in it. We know from buying consumer taste things as it matches the flavor of an alcoholic New England IPA. So it’s just hard to know where it’s going to go because brewers are now giving consumers choices in NAs with quality of the liquid and the brand that didn’t exist. So it’s hard to know whether something, a whole new option that didn’t exist, how big is it going to get, and how fast?

Rob Ottenstein — Evercore — Analyst

Great, thank you very much.

Operator

Our next question comes from the line of Steve Powers with Deutsche Bank. You may proceed with your question.

Steve Powers — Deutsche Bank — Analyst

Yes, hey, thanks guys. So I wanted to go back to gross margin. And I think to hit your gross margin outlook given the revenue commentary you need to average somewhere around 46% for the remainder of the year to get to the low end of your full-year gross margin guide. And I’m just looking for a little bit more help bridging from where 1Q landed to that 46% that’s required for the balance of the year. I know Frank in response to Nadine’s question at the beginning of the Q&A session, you run through a number of things that held back the first quarter. I don’t know if you back all those things out, do you get the 46% or not. That’s kind of one of my questions. But then even as I go forward, I don’t think you hedged anything and I think inflation is going to get worse. So I’m just trying to bridge just how to get more comfortable with your ability that to ratchet up to 46% or better for the balance of the year to hit the full year guide. So anything you can provide there would be super helpful.

Frank H. Smalla — Treasurer and Chief Financial Officer

Yes, so let me try. We clearly had higher input costs, but we expect those input costs to remain largely on the material side and we believe we can cover that with pricing, which is largely what we did in Q1. The — if you really look at what hurt Q1, it was the literally the hangover costs from the 2021 slowdown. We had significantly higher inventories. We had a bad mix in the inventory, that means we needed, we are too much of some and we didn’t have enough of the others. So we had lower absorption. We had some internal production capacity for the products that we needed was lower than what we will have in the year to go. So we needed to go externally at a relatively high cost, which was not the most efficient thing to do, the warehousing cost. If you — came on top of it. If you look at all of that and you added back into the margin you get relatively close to the target margin that we see for the year. What you will then see is I mean Q1 is also the smallest quarter that we have. So, while it was significantly below, it’s affecting a smaller portion of the overall volume.

As we go through the year, we’ll add lower cost capacity and the lower cost capacity will primarily come in terms of variety packs internal capacity especially Ohio what we’ve implemented the new can line and the variety pack line that will increase efficiencies, and then will have significantly higher volume and then we have ROA, which is relatively close to our internal costs and then we don’t have any other variety pack costs that is higher. And then we have the supply chain transformation initiatives which will bring down our other costs on top of it. So those are essentially the key drivers. So we believe we can get to the cost and then as I said before, we had higher scrap costs as well in Q1, which naturally, and we were expecting that as we had to work through the inventory that we sell out on hand and that should not repeat itself as well in the year to go.

Steve Powers — Deutsche Bank — Analyst

Okay, that’s helpful. That’s helpful. If I could just one follow-up on a separate point, G&A expense, it came in well, that’s $7 million higher than we expected. $7 million higher than last year. Is that — you attributed to higher salaries and third party costs. Should we consider those structural at this point. So that $40 million a quarter is kind of the new run rate or is there something in the first place that makes that extraordinary?

Frank H. Smalla — Treasurer and Chief Financial Officer

No, there is a part of it, like about 40% that is one-time in nature. And the rest of it is we have higher costs. I mean there is coming out of COVID where there are certain things where the business is changing a little bit. We have insurance costs, we have a couple of things that just going up that we had to adjust and it is partly reflecting the growth of the business, but there is a relatively big component that is one-time in nature.

Steve Powers — Deutsche Bank — Analyst

Okay, thank you very much.

Operator

Our next question comes from the line of Eric Serotta with Morgan Stanley. You may proceed with your question.

Eric Serotta — Morgan Stanley — Analyst

Yes, thanks for fitting me in. Dave, wondered if you can just talk briefly about how you’re thinking about managing the overall Truly portfolio. You guys have always had more SKUs and more variety packs than [Indecipherable]. You added Margarita this year. You’re adding Poolside, you’re adding the Vodka Seltzer at the same time we’re seeing some of the legacy packs and even Lemonade declining at rates that we saw for some competitive brands last year. So you’re going to take some shelf space but how are you looking to manage the overall portfolio. Are you considering some SKU rationalization? Would it be better to have a narrower portfolio at this point?

David A. Burwick — President and Chief Executive Officer

Hey, Eric. Thanks for the questions. I think a couple of things here. First, when we’re going — we’re moving to more LTO type work. So for example, the holiday pack last year was an LTO that by all accounts wholesalers, retailers, our sales organization did quite well, as you think about 50% incremental to the business. So it was in, it was out. Poolside is an LTO. So essentially we’re lapping the addition of Proofpoint’s last year with an LTO, not a permanent addition and I think as we get through the summer, your point is valid. We need to — we very much intend to take a look at that whole portfolio and it makes sense to rationalize it. It absolutely does because there are fewer more power SKUs are probably more profitable to continue to add new SKUs, so that’s something that’s very much on our radar. And we’re going to see how things participate.

I think how they play out, as it relates to say Lemonade to start the year which lemonade really got hurt with our supply chain issues in the first quarter. So we feel really good about Lemonade for sure. And fruit punch is well, but we’re going to take a look at the entire line up. The challenge with this category as you know is that consumers what they want news and they really become very attractive to whatever is new and on the shelf. We have to find a way to give news that this satisfies that desire for experiences from consumers and we think LTOs are really good way to do it and certainly, we know how to execute them. We do seasonals as well as anybody in beer and so we know how to manage that.

And then the question of that is, what is the core look like, how many SKUs do you need to grow the business and you can make an argument sometimes with fewer SKUs can deliver more volume. So I think, stay tuned, let’s get through the summer, see how things play out and then in the fall, we’re going to make some decisions.

Eric Serotta — Morgan Stanley — Analyst

Great. I’ll pass it on, getting along here. So, thank you for taking the question.

Operator

Our next question comes from the line of Bonnie Herzog with Goldman Sachs. You may proceed with your question.

Bonnie Herzog — Goldman Sachs — Analyst

All right, thank you. Hi, everyone.

C. James Koch — Chairman and Founder

Hey Bonnie.

Bonnie Herzog — Goldman Sachs — Analyst

Hi. Dave you actually sounded pretty excited about some of the new innovation you’re rolling out. So that’s great, so I’m curious, how many points in growth from new innovation is factored into your depletion and shipping guidance for the year. And then I guess I have to ask, I just wanted to ask, wanted to know if you still expect to hit your guidance even if Truly doesn’t grow this year?

David A. Burwick — President and Chief Executive Officer

I’m sorry, Bonnie. What was the second question, even if Truly doesn’t grow this year. What was the first part of that?

Bonnie Herzog — Goldman Sachs — Analyst

Yes, are you able to hit your guide.

David A. Burwick — President and Chief Executive Officer

Okay, guidance, hit our guidance, yes. I’ll hit that one first. I think Truly, right now, we’re planning Truly conservatively and to hit the top end of our guidance, Truly can still be negative. So if Truly is negatively, we can still hit the top end of the guidance. And we — which is what we can argue at odds with our goal is to grow share. We think the category is going to go between 0% and 10%. That’s our intent is to grow share and to grow Truly, but if for whatever reason it doesn’t play out, where the category is in that range, we can be negative with Truly and so hit the high end. We want to be, we’ve learned some thing from the last year or so about this all being very cautious about that. Again like what I was trying to lay out is we have, we do have a broad portfolio of brands and Twisted Tea is one of them Hard Dew is another Dogfish can cocktail is the whole litany I went through. We’re looking to get a broad-based growth across the portfolio. So we can — it also doesn’t force us to do things to Truly that we would, the short-term might be good but long-term is not good. So we feel good about the balance there.

As it relates to the mix between innovation, depends on how you want to look at whether there’s line extension innovation or new brand innovation, we have a lot of innovation this year. And say we’re probably weighted toward innovation everything from Twisted Tea Light to Truly Margarita which are line extensions, but their innovation to Hard Dew which is [Indecipherable] which are brand new. So I think we’re probably more weighted to innovation this year than we normally would be, but we kind of go with the opportunities are. And that’s where we see the opportunities right now.

Bonnie Herzog — Goldman Sachs — Analyst

Okay that makes sense. And then Dave, I had another question for you, just on your service level. You mentioned that they were pretty low in the quarter. So can you share where your service levels are at now. Are they back to peak levels or is this going to take a few more months. And then could you also give us a sense of what percentage of your volume you needed to outsource to co-packers in the quarter, given some of the issues that you guys laid out and sort of what’s your expectation for leveraging co-packers for the rest of the year?

Frank H. Smalla — Treasurer and Chief Financial Officer

Hi, Bonnie, this is Frank. Let me speak to the service levels first. So the service levels, they are not where we want them to be. They were very low at the beginning of the quarter. We have — we are improving. We are significantly improving, but we are still, I’d say more than 5 points away from where we really want to be and where we need to be. We were consistently approved throughout the year. Again we didn’t have the right mix at the beginning of the year that we had some production issues that all led to the significantly lower service levels. As we improve our internal operations and we get a better mix and a more plan for mix of our production, we will improve those service levels throughout the year.

The second question is a really hard one to answer. So actually had less than 50% externally, but the mix of the co-packers plays an important role as I tried to explain before. The co-pack volume and variety pack in the first quarter was a little bit unexpected. It was relatively high cost which originally we had — we thought last year we could get that all in-house. We will increase for peak, we will increase the usage of co-manufacturers, but it’s largely the news that’s coming in — coming on stream on the West Coast. So that’s why the common share will go up, but our average cost for, especially for a variety pack will go down because that will be lower cost option and our structure will be a lower cost structure.

Bonnie Herzog — Goldman Sachs — Analyst

Okay, super helpful. Thank you.

Operator

Our next question comes from the line of Laurent Grandet with Guggenheim. You may proceed with your question.

Laurent Grandet — Guggenheim — Analyst

Hey, good evening, everyone, and thanks for squeezing me in. Very quickly, first on Truly Vodka Seltzer. I understand that it’s a vodka base, not in FMBs, meaning that will it be priced higher to cope with the higher tax?

David A. Burwick — President and Chief Executive Officer

Hey Laurent, it’s Dave. Yes, it will be priced probably comparable to other products like High Noon, it will be. And in fact, if you look at it from a gross margin perspective, is probably about the similar gross margin to Truly Hard Seltzer out of the gate and ideally over time it’s accretive to Truly.

Laurent Grandet — Guggenheim — Analyst

Okay, thanks. And then a very similar question that the one I asked in a quarter ago. But you know that we divide the cider category into two, the mighty core seltzer and on one hand, and the board one on the other hand. So in the core Seltzer which is still about two-third of other total business, that category has been declining about 15% and you’ve been losing share because of obviously you have been focusing on developing innovation for in the Board flavors rightfully so. So I believe in the last quarter you said there will be some news coming on that front on that core mighty Seltzer to stabilize your shares in that sub segment. Is that still the case, because you didn’t say anything about it today?

David A. Burwick — President and Chief Executive Officer

Yes. So I think it’s always the core. The core later drinking we call them the EOG’s. A couple of things, one, we’re investing and we have a new ad campaign which I referenced that we’re spending behind that is actually getting traction. We’ve got a lot of activity around the jewelry business summer music tour and other things. So, we’re putting — we’re putting media and marketing dollars behind it. We’ve got it from an innovation perspective — we’ve got a lot going on in the summer that — that went through Laurent. So, I think ultimately I am in order to buoy the base of the business, which is important and we need to do more than 10 than just market behind with you things that are more fundamental. And I think that will come soon enough, but this is — but we were not able to really talk about it right now, other than what it does where we sit today.

Laurent Grandet — Guggenheim — Analyst

Okay. Well, fine. I’ll pass it on. It’s not to be late. Okay, thanks. Thanks guys, good luck.

Operator

Our next question comes from the line of Brett Cooper with Consumer Edge Research. You may proceed with your question.

Brett Cooper — Consumer Edge Research — Analyst

Thanks, good evening. Presumably operating more volatile in variable environment. I was wondering if you could speak to how you’re changing the management of the business, resourcing capital allocation. And then just trying to get an understanding of how dynamic resource allocation is for both established brands and new brands as you go through the year?

David A. Burwick — President and Chief Executive Officer

Okay. Okay, thanks, Brett. So you are referring specifically to how we’re investing across the portfolio. And what’s — and what we might be doing differently? Is that — was that the question is?

Brett Cooper — Consumer Edge Research — Analyst

Both in the management of the business in general, but then just the resource allocation and how dynamic that is as you see things playout. You’re talking about how some level of uncertainty and how different brands or parts of your business performed throughout the year. Just trying to understand how dynamic your support on those brands are as you go throughout the year?

David A. Burwick — President and Chief Executive Officer

I think, I mean we are, we have a plan to start the year and I think this year, I mean, our first goal this year was to continue to try to gain share as we have last year in Hard Seltzer but to build a broader base of support across the portfolio. So really with the big three investments this year around Truly, Twisted Tea which we talked about, which has a lot of momentum and has had it for a long time and Hard Mountain Dew, but we have other things we talked about as well. So I would argue that, first of all come into this year we’re placing bets against more than one brand and as we get traction we read stuff pretty quickly. So we look at it — we look at trial, we look at repeat, we look at household penetration, we go into the regions to understand where there is traction and we are very quick to move to funds around wherever we see that there is greater traction. So we’re — so that from a brand perspective anyway, that’s how we’re looking at is that we have set beliefs, but then we’re able to quickly change as things opportunities present themselves.

As I also mentioned before as it relates to Truly we’re being very cautious in our goals, we want to grow share across every category in which we can compete. That’s really how we measure, ultimately how we measure success. With Truly, we obviously had some challenges in the back half of last year in terms of our ability to read the market and how to invest or where the brand was going to go. This year we’re being very cautious in our expectations of that brand. As I mentioned earlier so, but that’s okay, because we’ve got other things on the plate that can deliver the growth that we’re looking for and Truly does better than we planned for that much the better.

I think broader from an organization perspective as Frank talked about we’re looking, I mean a big thing is our gross margin and really get into a more stable from a supply chain perspective and driving these improvements our path to improvement, we have a path to improvement. It was — also it would have been at the end of last year with all the things that happen and we’re back on that path now. And we simplified our production footprint to four anchor brewers. We worked on our cost structure. We’ll continue to do that to drive because we know that without improving gross margins there is nothing to — you don’t have what you need to invest in your brands.

I think, Frank also talked about G&A and other things that there were some one-offs in Q1 that was not indicative of the trend line for G&A. But we’re looking at everything. We’re looking at, how many people we add or don’t add to the organization. So across the board where our goal is to get this P&L back into the shape it was in 20 — in the first half of 2021 and in 2020 and 2019 and everything we’re doing is geared toward that. And then Jim referenced this whole obviously the geopolitical situation, inflation, the broader macroeconomic issues. We also — Frank and team have lots of contingencies and lots of things that we’re looking at if things could go into different way we can recover, that’s the goal. And we do think that our — again, as Jim said, maybe it takes some imagination just for some folks to see it, given our start, but we believe that the guidance that we issued at the beginning of the year is the right guidance. We think we have more than one way to get there, which is really important and we’re going to, and we’re working hard to deliver that and ultimately get back into that virtuous circle of leverage, where we’re growing the bottom line faster than the top line. So that’s a lot of stuff that I just throughout you Brett. So let me, I’ll pause now, tell me if we — if I answered the question appropriately. or are there other things that you’d like to understand from us.

C. James Koch — Chairman and Founder

Excellent, let me add.

Brett Cooper — Consumer Edge Research — Analyst

Sorry go ahead.

C. James Koch — Chairman and Founder

I’ll add another layer of perspective to your question about how responsive are we to a very fluid and dynamic market situation and we’ve got this big portfolio, and sometimes, one thing is leading the growth like Truly last year. This year it’s probably going to be Twisted Tea, who knows it might be Sam Adams next year and my sense is we’re quite responsive on the allocation of brand support resources, meaning advertising, meaning sales force effort, meaning distributor guidance and distributor support, those we are looking at and can change in a matter of months. So I think we have been pretty dynamic and it’s just part of our business model having a very complex portfolio with huge differences in growth rates among the elements of that.

With G&A, we’re a little less responsive, longer lead times because so much with it is people. The part but reasonably responsibility probably the least ability to be responsive is on the supply chain side of it, because the lead time duration is much longer and we’re facing dramatic differences in like how much brewery capacity we need. How much of it should be internal, how much contract, where should it be located and then certainly within our owned breweries, how they get configured and what are the operating practices. I mean, for example, we win in a five-year period from a business that had, I don’t know 5% or less of its business in variety packs to a business that was over half of our business is variety packs. That’s almost doesn’t exist anywhere in the beverage industry even, it’s pretty rare and consumer products. And if things like that just change your operating practice is completely.

You need big warehouse space internally for work in process, all of sudden you have a couple of hundred people in one site that you didn’t have the previous year. Just manually moving, loading up the packaging lines, pelletizing the cases by hand. And so that’s where there is multi-year lead times and we’re going through some of that. We were configured to be a much bigger business. It was going to be hard seltzer, it was going to be variety packs and we needed locations multiple ones. I think we were up to maybe eight co-packers at one time. And now we’re really down to just a couple. So that’s — it’s on the supply chain where we are. It’s very difficult to be responsive, because it’s about equipment brewery size and location and operating practices.

Brett Cooper — Consumer Edge Research — Analyst

Great, thanks. I’ll pass it on.

Operator

Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I would like to turn this call back over to Mr. Jim Koch for closing remarks.

C. James Koch — Chairman and Founder

Okay, thanks everybody for hanging with us through this whole hour and a half. Hope we’ve answered your questions. And looking forward to doing this again in three months. Cheers.

Operator

[Operator Closing Remarks]

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