Leanne Cunningham
Senior Vice President, Shareholder Relations Officer at Brown-Forman
Thank you, Lawson, and good morning, everyone. As Lawson reviewed the key themes for the first nine months of our fiscal year as well as the performance of our brands, I will provide additional details on our geographic performance, business results, and our outlook for fiscal 2022.
First, from a geographic perspective. Emerging markets, developed international markets, the US and the travel retail channel, all contributed significantly to our organic net sales growth. Collectively, emerging markets while impacted by supply chain challenges, delivered strong double-digit organic net sales growth year-to-date against favorable prior-year comparisons. This performance was driven by the growth of Jack Daniel's Tennessee Whiskey in Turkey and Chile and continued launch of Jack Daniel's Tennessee Apple, most notably in Brazil and Chile. And collectively, our full-strength tequila brands grew double-digits in Mexico as the premiumization trend continued which more than offset the prior-year comparison of New Mix RTDs.
Our overall business in Mexico continues to perform well as we are experiencing a faster than expected recovery in the on-trade, our market share trends are improving, and the pricing environment is positive as suppliers are implementing price increases across the spirits industry. Developed international markets collectively also delivered strong organic net sales growth, up double digits year-to-date. Growth was broad-based, largely due to the reopening of the on-premise as well as a rebound of travel and tourism in some markets. Supply chain challenges impacted our business in countries such as the United Kingdom and France. The Jack Daniel's Family of Brands continue to drive overall growth as Jack Daniel's Tennessee Whiskey delivered strong double-digit organic net sales growth led by markets such as Germany, where we are gaining market share, and Spain, which is benefiting from the gradual return of tourism.
The United Kingdom, in only its second year of own distribution, experienced strong growth despite being impacted by supply chain challenges, while Korea is benefiting from a shift in whiskey consumption to international brands. Jack Daniel's RTDs also delivered double-digit organic [Phonetic] sales growth as we continue to experience strong volume growth in Germany, where the brand sustained its momentum and remains a category leader. And even with Australia lapping strong prior-year comparisons, it continues to contribute to our growth.
In addition, Jack Daniel's Tennessee Honey grew organic net sales by double digits, led by Korea's shift to international whiskey brands, strong consumer demand in France, and tourism returning and Czechia. And while collectively, the Jack Daniel's super-premium brands, which includes Gentleman Jack and Jack Daniel's Single Barrel, grew organic net sales mid-single digits as they were significantly impacted by supply chain disruption.
Beyond the Jack Daniel's Family, the rest of our portfolio delivered very strong double-digit organic net sales growth led by el Jimador, Chambord, and Woodford Reserve, particularly in the United Kingdom, where we have placed additional focus on these brands through our emerging brands' group. The US business delivered high single-digit organic net sales growth in the first nine months of the fiscal year. The largest contributor to growth was Jack Daniel's Tennessee Whiskey driven by volume growth with the continued reopening of the on-premise channel, which led to a favorable channel mix. In addition, distributor inventories increased as we work to resolve supply chain challenges. Our tequila brands, led by Herradura, also contributed to the strong growth as the tequila category continues to be among the fastest-growing spirits categories driven by premiumization. Consumer premiumization trends also continue to benefit our premium bourbons led by Woodford Reserve and Old Forester, yet their growth rates have been significantly impacted by supply chain disruptions, particularly for Woodford Reserve. These disruptions reduced our finished goods inventory, along with the inventories of our distributors and retailers.
Jack Daniel's Tennessee Honey and Gentleman Jack were also negatively impacted by the supply chain challenges, which led to lower year-to-date volumes for these brands. We continue to monitor consumer mobility trends observed by Google mobility and OpenTable. And they showed a decline in consumer activity during the third quarter, reflecting the disruption from the Omicron variant but trends appear to be rebounding in the recent weeks. In the e-premise channel, our market share continues to remain slightly above 2% and well above pre-pandemic levels, even as the on-premise channel reopened and consumers began to return to in-store shopping.
Finally, our Travel Retail business continued to experience a strong rebound, driven by an increase in volume as we cycled against significant declines experienced during this period, last year. Our Travel Retail business is still in recovery as it is dependent on international airline travel and the cruise business, which continued to be below their pre-pandemic levels.
Moving onto gross profit and gross margin. Year-to-date reported gross profit increased 11% with organic growth of 14%, in line with our organic top-line growth. Reported gross margin was down 20 basis points year-over-year, driven primarily by unfavorable cost mix and the negative effect of foreign exchange, largely offset by favorable price mix and the impact of the sale of Canadian Mist, Early Times, and Collingwood brands, in the prior fiscal year. Positive price mix was driven by favorable portfolio and channel mix. Our portfolio mix has shifted to our higher-margin full-strength spirits brands, especially as we compare to the year-ago period when we experienced the very strong growth of our RTDs. In addition, the reopening of the on-premise channel continues to have a positive impact on our channel mix. Consistent with our comments over the last two quarters, our cost increases have been driven by our efforts to minimize the impact of the supply chain disruptions, largely related to the glass supply constraints as well as input cost headwinds related to agave and other commodity prices, namely grain.
Through close partnerships with our glass suppliers, supply constraints have continued to ease, allowing for some improvement in inventory levels in the US, particularly for Jack Daniel's Tennessee Whiskey. Inventory levels do remain below the prior year at both the distributor and retailer levels. Agave costs are remaining stable but are higher than our expectations as they are not easing as quickly as we thought due to the increased demand for our tequila brands as growth in the US and a faster than expected rebound in Mexico continue [Phonetic].
Turning to our operating expenses, which represent the investments we make behind our people and our brands to drive sustainable long-term top-line growth. Our reported and organic advertising expense increased 12% year-to-date as we continued to invest behind our brands. In the third quarter, reported advertising expense decreased 4%, down 2% on an organic basis as we now cycle the phasing of spend from the first half to the second half of last fiscal year. SG&A expenses on a reported and organic year-to-date basis increased 8% led by compensation-related expenses.
Our operating income on a reported basis decreased 4%, primarily driven by the effect of the prior year sale of Early Times, Canadian Mist, and Collingwood brands. On an organic basis, operating income grew 19% year-to-date. The decrease in reported operating income, combined with a year-over-year increase in our effective tax rate resulted in a 12% decrease in diluted earnings per share to $1.43 per share.
Now, to our updated fiscal 2022 outlook. As Sue mentioned in her opening comments, when referring to certain non-GAAP financial measures, we will no longer report underlying measures of change for any P&L line item and will report organic measures of change. Therefore, this current outlook is presented on an organic basis and is not directly comparable to our previously presented outlook. With that, the operating environment does remain challenging and there are a number of uncertainties related to the pandemic, supply chain, inflation, and the geopolitical environment. Amid these uncertainties, we continue to be confident in the strength of our portfolio of brands and our team's ability to navigate these challenges. Therefore, we are optimistic in our ability to deliver strong full-year results.
With our strong year-to-date performance and consumer demand for our brands, we expect organic net sales growth of 11% to 13% for the full fiscal year. This is based on the continuing strength of our US business, even as we cycle the prior year reopening of the on-premise. The continued benefit from the reopening of the on-premise channel and the gradual recovery in travel and tourism in our developed international markets, strong growth in our emerging markets as well as Travel Retail, as the recovery gains momentum and we cycle the effects of easier comparisons. And we continue to expect our non-core business, mainly used Barrel sales do not have a material impact on our results this fiscal year. We also believe that our supply chain constraints will continue to ease, enabling us to meet consumer demand as well as rebuild inventory levels across our supply chain.
Additionally, we believe our portfolio of brands is well-positioned to continue to benefit from premiumization trends as well as the price increases on a number of our brands in the US, including Jack Daniel's. We are beginning to see pricing reflected in the US data, and while food and beverage, as well as the spirits inflation lags the overall CPI, the number still show a healthy pricing environment. Based on Nielsen takeaway data, through the end of our third fiscal quarter, Brown-Forman is outpacing TDS pricing growth and is a pricing leader.
Turning to gross margin. We continue to utilize our risk mitigation strategies to manage through the impact of supply chain disruptions and are addressing the various constraints on our business. We still believe that these challenges will continue to improve as we end the fiscal year, though still a headwind on a full-year basis. We project cost headwinds related to logistics as well as agave and other commodity prices mainly drain [Phonetic] will continue to have a negative impact on our gross margin. As we shared last quarter, these headwinds will be slightly offset by the modest positive impact from the removal of tariffs in the EU, which ended on January 1, 2022. Based on these combined headwinds and tailwinds, we continue to expect reported gross margin to be flat or slightly down for the full year compared to fiscal 2021.
Before I move on, I wanted to provide a quick update regarding the UK whiskey tariffs. While the EU tariffs have been removed, the UK tariffs remain in place. Talks are still ongoing between the US and the UK regarding the tariffs that remain in place and we continue to be cautiously optimistic that both parties will resolve this ongoing trade dispute. We expect our total organic operating expenses, which include advertising and SG&A expenses, to be in the 7% to 9% range as we continue to invest behind our brands to support our ability to gain share and to drive top-line growth. On an organic basis, we anticipate advertising expense to be slightly below top-line growth.
The growth in SG&A has been focused on increasing the level of control we have in our route to consumers, two of which, Belgium and Taiwan, have already launched this year. We have also invested in the international expansion of our emerging brands teams and increased investment in our digital marketing and e-commerce capabilities. These strategic initiatives to support the growth and development of our broader portfolio of brands.
Based on the above expectations, we believe our organic operating income growth will be in the range of 12% to 16% for the full year. Lastly, we continue to expect our fiscal 2022 effective tax rate to be in the range of about 22% to 23%. In summary, we are pleased with our strong year-to-date results, which delivered double-digit organic top-line and bottom-line growth. Over these past nine months, we have continued to build momentum in a challenging and evolving operating environment and believe we are well-positioned to have a strong fiscal 2022 because of the strength of our team members and our portfolio of brands. Our team has remained agile and resilient while living our company's values. And our portfolio of brands has remained strong supported by our strategic priorities, our investments, and consumer trends. We will continue to care for our people and our brands as they are the pillars of our ability to deliver sustainable long-term growth.
This concludes our prepared remarks. Please open the line for questions.
