Discounting Takes Its Toll on Wine Company’s Profit

Widespread discounting sent profit at Chalone Wine Group tumbling 43% in the latest quarter.

The Napa, Calif., owner of the Acacia, Echelon, Chalone and other wine brands said Friday it had earned $379,000, or 3 cents a share, in the third quarter, compared with $664,000, or 6 cents, in the same period a year earlier.

Sales also fell, dropping 13% to $16.4 million from $18.8 million a year ago. Much of the decline resulted from Chalone’s sale of the Carmenet brand name and inventory to Beringer Blass a year ago.

Chief Executive Tom Selfridge said Chalone had seen “healthy growth” in its core brands, including a 40% jump in sales of Pinot Noir wines.

Like other wineries, Chalone had to reduce prices to maintain market share.

However, Selfridge said the company had maintained stringent control over its cost structure, which will pay off in higher profit when pricing firms up, something he doesn’t expect until 2005.

“Things are getting better, consumption is up,” he said. “However, we’re not out of the woods yet. We are entering what is traditionally the busiest quarter of the year for the wine industry and we anticipate the marketplace to remain extremely competitive.”

Chalone shares rose 10 cents to $9 on Nasdaq after its earnings release Friday.

On Thursday, Salinas. Calif.-based Scheid Vineyards Inc. said net income jumped 149% to $2.2 million, or 40 cents per share, in the third quarter, compared with $873,000, or 16 cents, for the same period a year ago. Revenue increased 51% to $11.5 million from $7.6 million.

Much of the gains in income and sales came because the owner of 6,000 vineyard acres in Monterey County harvested a higher percentages of its holdings in September this year than it did a year earlier. Because of variations in weather conditions, the timing of the grape harvest varies from year to year, with different portions falling between the third and fourth quarters.

Scheid shares fell 13 cents to $3.82 Friday on Nasdaq.