Significant changes in the package mix could have a material effect on net revenue. The Company
primarily packages its products in kegs, bottles and cans. Assuming the same level of production, a shift in the mix from kegs to bottles and cans would effectively increase revenue per barrel, as the price per equivalent barrel is lower for
kegs than for bottles and cans. The percentage of bottles and cans to total shipments increased by 2.5% to 85.1% of total shipments for the year ended December 29, 2018 as compared to the year ended December 30, 2017.
Cost of goods sold.
Cost of goods sold was $112.79 per barrel for the year ended December 29, 2018, as compared to $109.64 per barrel for the year
ended December 30, 2017. The 2018 increase in cost of goods sold of $3.15 or 2.9% per barrel was primarily the result of higher processing costs due to increased production at third party breweries and higher temporary labor at Company-owned
breweries and higher packaging costs, partially offset by cost saving initiatives at Company-owned breweries.
Gross profit.
Gross profit was
$119.52 per barrel for the year ended December 29, 2018, as compared to $119.41 per barrel for the year ended December 30, 2017. Gross margin was 51.4% for the year ended December 29, 2018, as compared to 52.1% for the year ended
December 30, 2017.
The Company includes freight charges related to the movement of finished goods from manufacturing locations to Distributor
locations in its advertising, promotional and selling expense line item. As such, the Companys gross margins may not be comparable to other entities that classify costs related to distribution differently.
Advertising, promotional and selling.
Advertising, promotional and selling expenses, increased $46.2 million, or 17.9%, to $304.9 million for
the year ended December 29, 2018, as compared to $258.6 million for the year ended December 30, 2017. The increase was primarily the result of increased expenditures in local marketing, media advertising, and
point-of-sale,
higher salary and benefit costs and increased freight to distributors due to higher rates and volumes and less efficient truck utilization.
Advertising, promotional and selling expenses were 30.6% of net revenue, or $71.13 per barrel, for the year ended December 29, 2018, as compared to 30.0% of
net revenue, or $68.65 per barrel, for the year ended December 30, 2017. The Company will invest in advertising and promotional campaigns that it believes are effective, but there is no guarantee that such investment will generate sales growth.
The Company conducts certain advertising and promotional activities in its Distributors markets, and the Distributors make contributions to the
Company for such efforts. These amounts are included in the Companys statement of operations as reductions to advertising, promotional and selling expenses. Historically, contributions from Distributors for advertising and promotional
activities have amounted to between 2% and 3% of net sales. The Company may adjust its promotional efforts in the Distributors markets, if changes occur in these promotional contribution arrangements, depending on the industry and market
conditions.
General and administrative.
General and administrative expenses increased by $17.7 million, or 24.2%, to $90.9 million for
the year ended December 29, 2018, as compared to $73.1 million for the comparable period in 2017. The increase was primarily due to increases in salaries and benefits and stock compensation costs, and legal and consulting costs.
Impairment of assets.
For the year ended December 20, 2018, the Company incurred impairment charges of $0.7 million, based upon its review of
the carrying values of its property, plant and equipment. These impairment charges were primarily due to the write-down of brewery equipment at the Companys Pennsylvania and Cincinnati breweries.
Stock-based compensation expense.
For the year ended December 29, 2018, an aggregate of $10.0 million in stock-based compensation expense is
included in advertising, promotional and selling expenses and general and administrative expenses. Stock compensation increased by $3.7 million in 2018 compared to 2017, primarily due to a cancelation of unvested equity awards in 2017 upon the
departure of key employees.
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