Willamette Valley Vineyards (WVVI) Is Doing It Right
Willamette Valley Vineyards (WVVI), described by Wine Enthusiast Magazine as “one of America’s great pinot noir producers,” is a large, publicly-traded winemaker located in northwest Oregon. WVVI concentrates on cool-climate varietals like pinot noir, pinot gris, and chardonnay and is said to be the “leading producer of Pinot noir in Oregon.”
Willamette Valley is not only one of the smallest publicly traded companies but it is a rarity on the stock market: a wine producer and distributor. This type of business is typically too small to be publicly traded, primarily due to the costs of SEC regulations. We thought it would be interesting to see what a company of this size in this industry looked like under the hood.
Their stock price (Google Finance chart shown above) has had its ups and downs over the years, and is currently sitting close to their IPO price. Not coincidentally, their financial performance has also been all over the map. WVVI has historically tried to increase wine sales by lowering prices and they have been slowly dying financially because of it. Not enough cash flow to sustain the operations equates to a slow bleed-out.
In 2010, we would have recommended they stop seeking revenues and start focusing on gross profit margins and gross profit dollars – increase prices and do it now! Over the next 3 years, prices increased, gross profit margin increased by almost 1/3, and the annual revenues declined 24%. These changes made sure the business stayed healthy during a time that could have really hurt their future prospects.
WVVI was never this good at raising gross profit margin, let alone maintaining a steady gross profit margin but in the last several years they have done a superb job of this. As a result, the company has higher net income and cash flow to show as the result while sales have actually declined 20% over the last several years.
WVVI has produced increasing net operating income while sales and operating expenses have declined. The gross profit dollar growth has remained flat even though the annual sales have declined due to increasing gross profit margins offsetting the sales decline. Over this period, operating expenses were reduced by 1/3, helping their margins even more.
This is a company that truly is working harder for more money – not less – and it shows. While we would not recommend the wine industry as a great way to make money, clearly WVVI gets it and we wish them the best in the new year!