Inventory constraints have weighed on Willamette Valley Vineyards in its second quarter and first half results.

The company reported yesterday (14 August) that net income for the three and six months period was US$265,177 and $499,440, respectively, compared to net income of $259,206 and $616,500, in the comparable prior year periods.

Revenues increased 8.5% and net income before taxes increased 2.3% for the three-month period to the end of June, as compared to the prior year period. For the six months, revenues increased 2.6% and net income before taxes decreased 19%, as compared to the prior year period.

In a statement, the company said: "Continuing demand from out-of-state distributors for the company's Pinot Noir and Pinot Gris, in excess of recent year's production levels, has drawn down the inventory of those varieties to the point that income from those products is now being significantly affected.

"Although the company continues to have constraints on inventories of key varietals produced which have been allocated to distributors to be shipped on a scheduled basis over the calendar year, the company has increased sales of other producers products which have a lower profit margin."

Despite these inventory constraints, the company generated $0.05 and $0.06 basic earnings per share in the first and second quarter of 2007 respectively.

"The company believes the proper steps are being taken to increase the generation of high quality wine inventories over time as vineyard plantings mature. In the first quarter of 2007 the company loaned one of its growers $250,000 to support additional plantings during the first quarter. The company continues to improve its internal staffing and management systems in anticipation of these higher, future volumes," the statement added.

In the first quarter of this year, the company entered a long-term lease for Elton Vineyards, a related party, located in the Eola Hills, to help address the inventory constraints. The vineyard consists of 60 acres of mature grapevines of which approximately 42 acres are Pinot Noir. Willamette Valley Vineyards has an initial 11-year lease with the option to renew for four successive terms of five years each plus a first right of refusal on the property's sale.