Leanne Cunningham
Executive Vice President and Chief Financial Officer at Brown-Forman
Thank you, Lawson, and good morning, everyone. As Lawson reviewed the top line growth and performance of our brands for the fiscal year, I will provide additional details on our geographic performance, other business results, and our outlook for fiscal 2024. First from a geographic perspective. Our top line growth in fiscal 2023 was broad-based with reported and organic net sales growth in each geographic cluster and the Travel Retail channel compared to the same prior year period. Collectively, emerging international markets delivered strong double-digit organic net sales growth, increasing 24% for the fiscal year. This strong performance was driven by Jack Daniel's Tennessee Whiskey, notably in the United Arab Emirates, Turkiye, and Brazil as supply chain disruption eased, which improved product availability and pricing increased.
RTDs also meaningfully contributed to the growth with New Mix and Jack Daniel's RTDs growing strong double-digits in Mexico, where the RTD category is growing and we are gaining share, while increasing price. In addition, Herradura and el Jimador delivered double-digit organic net sales growth in Mexico, largely driven by strong pricing. This growth is especially notable as it includes the absence of business in the Russia market as we suspended our commercial operations there in March 2022. Prior to the suspension, this market represented approximately 2% of our total reported net sales.
Our developed international markets collectively grew organic net sales double-digits in fiscal 2023. Jack Daniel's Tennessee Whiskey was the largest contributor to this growth, led by Germany, where the brand is growing double-digits and gaining share within the whiskey category, and Japan, which is continuing to benefit from strong consumer demand, in both the on- and off-trade. Japan is one of the world's largest spirits markets with a significant footprint and a leading position in premium-plus whiskey. Earlier this week, we announced our plan to transition to own distribution in this market effective April 1st, 2024, representing the 15th market where we will own and the operate the distribution of our portfolio.
We would like to thank Asahi and their entire team for their partnership over the past 10 years and for successfully growing our portfolio in Japan. We believe this change will drive long-term growth through the continued development of our Jack Daniel's family of brands and the broader super-premium brand portfolio. This is an important milestone for Brown-Forman and follow successful launches of other own distribution organizations in Asia, such as Korea, Taiwan, and Thailand.
While on the topic of route-to-consumer, I would like to highlight our recent transition to own distribution in Belgium at the beginning of calendar 2022. This market more than doubled its organic net sales in fiscal 2023, led by a significant acceleration in growth from the Jack Daniel's family of brands as well as Woodford Reserve. This is just one of the many examples of why we continue to believe that own distribution transition creates opportunities to fuel share growth, strengthen our portfolio, capture more of the value chain, and unlock future potential for our full portfolio of brands.
Focusing back on our developed international results. Jack Daniel's RTDs, represented the second largest contributor to growth, also growing organic net sales double-digits driven by Germany and Australia where we are gaining share. We are excited about the growth of brands, such as el Jimador, Woodford Reserve, Gentleman Jack, and The GlenDronach, where each delivered double-digit organic net sales growth. These results continue to reflect our strategic priority of increasing focus on our premium and super-premium portfolio through our emerging brands teams in Europe.
Diplomatico and Gin Mare have recently joined this super-premium portfolio of brands and we believe will soon being meaningful contributors to this emerging brands business. In Europe, we continue to closely monitor the impact of inflation on consumer behavior. While the data is beginning to show some evidence of down-trading, such as growth in private label, our brands have gained share in Germany and the UK. Spirits remain an affordable luxury for consumers, even as we have continued to increase price through our revenue growth management strategies. The US business delivered 3% organic net sales growth, reflecting a normalization of our business in the market.
As we have shared with you throughout this fiscal year, supply chain disruptions impacted the seasonality of our fiscal 2023 shipments due to the abnormal seasonality of the fiscal 2022 shipments. In the first half of fiscal 2022, distributor inventories did not increase ahead of the holiday season as is typical and we experienced stronger shipments in the second half of fiscal 2022, as supply challenges began to ease. As expected, in the first half of fiscal 2023, we increased our shipments as supply chain disruption continue to ease and distributor inventories were returning to more normalized levels, which benefited the US net sales growth.
In the second half, net sales were negatively impacted as we lap the increase in shipments in the prior year period related to the rebuilding of our inventory position, particularly for Jack Daniel's Tennessee Whiskey. For the full fiscal year, we estimate the net change in distributor inventories reduced the net sales growth rate by two points, which was in line with our expectations. Woodford Reserve remained the largest contributor to organic net sales growth, driven by strong consumer demand and estimated net increase in distributor inventories as glass supply and capacity constraints continue to ease.
Innovation contributed significantly to the US growth with the launch of Jack Daniel's & Coca-Cola RTD, which was the second largest growth driver. Organic net sales also benefited from higher prices across the portfolio led by the Jack Daniel's family of brands as well as premiumization with the successful launch of the Jack Daniel's Bonded series. This growth was partially offset by lower volumes of Jack Daniel's Tennessee Whiskey and Korbel California Champagne largely due to our focus on rebuilding inventory levels across the supply chain in the second half of fiscal 2022, which created a strong prior year comparison, resulting in an estimated net decrease in distributor inventories.
From a takeaway perspective, the disconnect between Nielsen takeaway and our actual results continue to narrow as we lap many of the factors that created the gap, such as the impact of our brand and market prioritization work in fiscal 2022 related to supply chain challenges. As the industry began to normalize, total distilled spirits delivered value growth in the low- to mid-single-digits. As we lap the impact of supply chain constraints, that previously suppressed our performance, our takeaway performance is normalizing. Although, with our recent innovation, Brown-Forman is outpacing total distilled spirits growth. We worked diligently to rebuild finished goods inventory levels across the three-tiered system and believe that distributor inventory levels are now back to normal. We are continuing to rebuild some brands and sizes, but shipments and depletions are largely in balance across our full-strength portfolio.
And finally, the Travel Retail channel continued its very strong rebound in fiscal 2023, as international airline travel and the cruise industry recovered from the impacts of the pandemic-related travel restrictions. Organic net sales grew 43%, led by higher volumes across much of our portfolio, and our business has returned to pre-COVID levels. Moving to gross profit and gross margin. For the full fiscal year, reported gross profit increased 4% with organic growth of 9%, which was slightly below our organic top line growth. Reported gross margin contracted by 180 basis points, slightly better than our latest expectations. Favorable price/mix driven by our pricing strategy and the removal of the European Union and United Kingdom tariffs on American Whiskey were more than offset by higher inflation on input costs and supply chain disruption costs largely related to global logistics constraints, along with the negative effect of foreign exchange.
Turning to operating expenses. Total reported operating expenses increased 15% with organic increasing 11%, in line with our expectations. As we have shared, we have been committed to reinvesting a portion of the tariff relief back behind our brands once removed. In fulfilling this commitment in support of sustainable long-term growth, this resulted in our brand investment for the fiscal year at a rate above our top line growth with our reported and organic advertising expense increasing 15% and 18%, respectively. The increase was focused primarily on Jack Daniel's Tennessee Whiskey, the launch of Jack Daniel's Bonded, Herradura, and Woodford Reserve.
We also continue to invest behind our people as SG&A expense increased 8% on a reported and 9% on an organic basis, driven primarily by higher compensation-related expenses and higher discretionary spend as the return to a normalized environment enabled in-person events and activities to resume. Costs related to the acquisitions of the Gin Mare and Diplomatico brands impacted the reported results. Reported operating income decreased 6% for the full year, reflecting lower gross margin, higher non-cash impairment charges largely related to the Finlandia brand name, and higher operating expenses, including certain post-closing costs and expenses in connection with the acquisition of the Gin Mare and Diplomatico brands.
Organic operating income, which excludes the impact of foreign exchange, impairment charges, and acquisition and divestitures, grew 8%. As noted in our earnings release, in the fiscal year, diluted earnings per share decreased 7% to $1.63 due to the decrease in reported operating income for the reasons I have just previously-stated and a pension settlement charge partially offset by the benefit of a lower effective tax rate.
Before moving on to our fiscal 2024 outlook, I'll provide a few updates related to our capital deployment. As a reminder, our capital allocation philosophy is to, first, fully invest behind our business, second, to pay increasing regular dividends, third, we opportunistically look for acquisitions that we believe create long-term value for the next-generation of growth, and finally, we look to opportunities to return cash to stockholders. In fiscal 2023, we generated strong cash flow from operations, which enabled us to meet our current operating needs, fund capital expenditures, and returned $378 million to our stockholders through regular dividends.
We believe our investment-grade credit ratings, A1 by Moody's and A- by Standard and Poor's, provide us with financial flexibility when accessing the global debt capital markets and allow us to reserve adequate debt capacity for investment opportunities and unforeseen events. Related to the investment opportunities, on March 21st, 2023, we issued $650 million 10-year senior unsecured notes due April 15th, 2033. We utilized the net proceeds from the offering to refinance our existing $600 million of outstanding debt under a senior unsecured 364-day term loan credit agreement that helped fund our acquisition of Gin Mare and Diplomatico. We believe our long-held capital allocation philosophy, coupled with our strategic priorities, will continue to drive superior returns for the long-term.
And now to our fiscal 2024 outlook. We are optimistic as we look ahead. We have now cycled through the largest impacts of the pandemic. And after the global macroeconomic and geopolitical volatility experienced in fiscal 2023, we believe trends are beginning to normalize around the world. After two years of strong growth, which were well-above our long-term trends, we continue to believe that the strength and increasing premiumization of our portfolio of brands, the resilience of our people, and the strategic investments we have made will deliver continued growth on this elevated base. While consumer demand for our brands begins to reflect a normalization back to our more historic trends, we expect to continue to benefit from our long-term pricing and revenue growth management strategies, partially offset by a portfolio mix shift to RTDs, largely related to the launch of Jack Daniel's & Coca-Cola RTD.
In what has been a highly dynamic operating environment, we remain cautious due to the current macroeconomic volatility and the potential impact of inflation on consumer spending, but believe that the collective strength of our US and international markets, along with the Travel Retail channel should reflect our longer-term growth algorithm, and therefore, we expect organic net sales growth for fiscal 2024 in the 5% to 7% range. It is important to note that, in fiscal 2024, on a year-over-year basis, we will still be comparing against the strong shipments related to our rebuilding of distributor inventories that began in the second half of fiscal 2022 and extended into the first half of fiscal 2023.
I will also mention the stronger shipments associated with the launch of Jack Daniel's & Coca-Cola RTD in the back half of fiscal 2023 will have to be lapped in the second half of fiscal 2024, both are reflected in our guidance. We believe inflation will continue to negatively impact our input cost, which will be partially offset by lower year-over-year costs associated with the supply chain disruption we incurred in fiscal 2023. Our outlook reflects a normalization of incremental advertising spend after lapping a year of significant incremental investment in fiscal 2023. As a reminder, our long-term philosophy for advertising spend has to be aligned with our top line growth.
SG&A growth is likely to remain higher than historical averages as we continue to expect higher compensation-related expenses and transition Japan to own distribution in fiscal 2024. Based on these expectations, we anticipate organic operating income growth in the 6% to 8% range for the full fiscal year. We also expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23%. And lastly, for capital expenditures, as I mentioned, we remain committed to investing fully behind our business. And based on the expectation for continuing strong consumer demand for our brands, additional expansions are required to support this growth, particularly for the Jack Daniel's family of brands and our Herradura of tequila brands, as Lawson shared earlier in his comments. Therefore, in fiscal 2024, we estimate our capital expenditures will be in the range of $250 million to $270 million for the full year.
In summary, we are proud of our second consecutive fiscal year of strong broad-based growth from both a brand and geographic perspective. In fiscal 2023, we delivered double-digit organic top line and high-single-digit organic bottom line growth despite the significant disruptions and challenges we encountered throughout the year. As trends and inventories are normalizing, we are optimistic about the fiscal year ahead. We believe the strength of our premium and iconic brand portfolio, along with the talent and diversity of our team members will enable another year of consistent growth in Brown-Forman's history of delivering sustainable and consistent long-term performance.
This concludes our prepared remarks. Please open the line for questions.
