Lawson Whiting
President and Chief Executive Officer at Brown-Forman
Thank you, Sue, and good morning, everyone. It's a pleasure to be able to speak to you today about Brown-Forman's first quarter results for fiscal 2024. Before we get into the details of the quarter, there are a few key drivers of our first quarter results that you will hear about repeatedly throughout this call.
First, the rebuilding of distributor inventories, primarily in the United States in the prior year period had a significant impact on our first quarter results. As you will recall, this rebuilding in the prior year occurred as a result of supply chain disruptions. If you reference Schedule D in today's earnings release, it will provide you with additional information to put this quarter into better context. Second, the timing and phasing of our operating expenses had an impact on our first quarter operating income as we launched and acquired new brands while also investing in our existing portfolio. As you can surmise from our full year guidance, we expect this to moderate as we continue throughout the rest of the fiscal year. And finally, and most importantly, we believe the health of our brands and our business remain strong as evidenced by consumer takeaway trends. We continue to be confident that we have the best portfolio and the best people in the market, and it's this confidence that allows us to reaffirm our full year outlook for fiscal 2024.
With this backdrop, let me quickly walk you through our high-level results for the first quarter. From a top line perspective, our reported and organic top line results were below our longer-term historical trends. Much of this is being driven by the comparison to the strong double-digit top line growth in the first quarter of last year. You'll recall our glass supply significantly increased in the spring and summer of 2022, which allowed us to rebuild distributor inventories, which created a strong comparison for the first quarter of this fiscal year.
Our gross margin expanded with favorable price mix and the removal of the UK tariffs. These gains more than offset increased input costs, foreign exchange headwinds and the impact of our recent acquisitions. In the first quarter, we also made significant investments behind our brands and our people, which resulted in a year-over-year decrease in reported and organic operating income.
Now let's go into each of the P&L items a little bit more. I'll briefly provide a few more details on the top line from a brand perspective, and then I'll turn it over to Leanne who will share additional insights on our geographic performance as well as other financial heights before closing with some comments on our fiscal 2024 outlook.
Our reported net sales growth increased 3% with organic net sales growth increasing 2% after adjusting for the recent acquisitions and the negative effect of foreign exchange. Organic net sales growth in the quarter was driven by the continued growth for Jack Daniel's Tennessee Whiskey, Jack Daniel's Tennessee Apple and el Jimador. This growth was partially offset by declines related to the estimated net decrease in distributor inventories, particularly for brands such as Woodford Reserve, Jack Daniel's Tennessee Fire and Gentleman Jack as we cycled against the significant inventory rebuild in the first quarter of last year.
In total, we estimate that the net change in distributor inventories had a 6% impact on our overall top line results. If you were to factor in the net change in distributor inventory, our net sales growth would have actually been above our long-term growth expectations. As I mentioned earlier, we believe our business is strong.
Jack Daniel's Tennessee Whiskey led our growth as organic net sales increased 2% after lapping an organic net sales increase of 21% in the prior year period. We believe the consumer demand is normalizing and estimate that the growth rate on Jack Daniel's Tennessee Whiskey in the first quarter was lower by approximately 2 percentage points due to the net change in distributor inventory. Growth continues to benefit from our pricing strategy as well as our revenue growth management initiatives.
Second, Jack Daniel's Tennessee Apple grew organic net sales more than 50% as we lapped the impact of the glass supply constraints in the year-ago period, and we're better able to meet consumer demand, particularly in markets such as Brazil. The brand also benefited from a strong launch in South Korea. Demand for tequila, particularly in the US, remains strong. el Jimador was the third largest contributor to overall Company organic growth, increasing organic net sales 26%.
We continue to see strong momentum in our ready-to-drink portfolio, which grew organic net sales 5%. This was led by the launch of Jack Daniel's and Coca-Cola and the continued growth of New Mix which performed well as the RTD category in Mexico is growing and the brand is increasing share. The growth was partially offset by planned declines in Jack & Cola as the markets prepared for the Jack Daniel's and Coca-Cola launch. I know there's been tremendous energy and curiosity around our new Jack Daniel's and Coca-Cola RTD. So I thought I'd share a bit more detail on the continued launch.
Impressively, the global volume has already grown to 1.8 million cases across 11 markets, led by the US and Japan. As we've shared before, some markets are being led by Brown-Forman, whereas others are being led by The Coca-Cola Company. Therefore, this total case volume is not reflected in our 9-liter depletion results. We expect that this total volume will continue to grow as we plan to expand from 11 to 30 markets by the end of calendar 2024.
In the US, the Jack Daniel's and Coca-Cola RTD launch has been the most successful launch in Brown-Forman history, having achieved the second highest level of off-premise distribution across the portfolio, only behind Jack Daniel's Tennessee Whiskey. Today, it has reached over 2% of the RTD categories value share. And overall, we're pleased with the initial launch of this iconic product and believe our success is driven in part by the strong investment behind the launch including significant investments in broad-reach media, events and trade execution. As the launch evolves, we would naturally expect this investment to normalize.
We're also excited by the brand visibility, the market share gains and the positive feedback from distributors, retailers and most importantly, consumers. I must say, you know you're doing something right when consumers start wearing your spirit brands. And I just saw a picture of the first reported Jack & Coke RTD Tattoo. The loyalty of our Jack Daniel's fans is strong and impressive.
The Jack Daniel's and Coca-Cola RTD has been strong addition to the portfolio, which as you now, we have been very strategically reshaping over the last couple of decades to focus on premium and super premium brands. We continue to believe this premiumization provides us with the best opportunity for long-term growth and value creation. The integration of our newest brands, Gin Mare and Diplomatico continues to go well. The brands increased reported net sales in the first quarter by 2%, and we continue to expect these brands will be meaningful contributors to our long-term growth.
Also, as a part of this portfolio evolution, we announced the sale of Finlandia Vodka earlier in the quarter. Finlandia has played an important role in the global growth of Brown-Forman since it joined our portfolio fully in 2004, and we appreciate the many talented employees who worked hard over the two decades to build the brand. We know this brand will continue to evolve in the capable hands of Coca-Cola HBC when the sale closes in the second half of the 2023 calendar year.
Before turning the call over to Leanne, I'd also like to add some additional perspective on our gross margins and operating expenses. In the first quarter of 2024, our reported and organic gross profit increased 5%, both ahead of the respected top line growth rates. While we experienced some headwinds in the form of higher input costs and the negative effect of foreign exchange, they were more than offset by the tailwinds of favorable price mix, lower supply chain disruption related costs and lower tariff-related costs due to the removal of the UK tariffs on American whiskey. This resulted in 90 basis points of gross margin expansion in the quarter.
We continue to be focused on the execution of our long-term pricing strategy and believe the health and relevance of our brands, supported by our continued brand-building investments, will allow us to continue to achieve our strategic priorities. Our brand-building investments were evident in our first quarter as organic advertising expenses grew 14%. This was largely due to the timing of our increased spend to support the launch of the Jack Daniel's and Coca-Cola RTD, which, as I mentioned earlier, is significantly skewed to first few months of our fiscal year as well as increased investment for Jack Daniel's Tennessee Whiskey. We also continued to invest behind our people. Our organic SG&A investment increased 12%, driven primarily by higher compensation-related expenses related to organizational changes, including our route to consumer expansions, which we believe will support Brown-Forman's long-term success.
In summary, we're off to a good start in fiscal 2024 and remain optimistic that we can achieve our full year goals. While consumer demand for our brands begins to reflect a normalization back to our more historical trends, we expect to continue to benefit from our long-term pricing and revenue growth management strategies as well as a more normalized cost environment. We're still operating in a highly dynamic world, yet we have remained agile, focused and committed to the long-term growth of our people, our brands and our business. We take pride in our ability to deliver consistent and reliable growth year after year, decade after decade, and we believe this tradition of excellence will continue in fiscal 2024.
With that, I'll turn the call over to Leanne and she'll provide more details on our first quarter results.
