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ESDI: First quarter growth accelerating into second quarter

By Ian Gilson, PhD, CFA


On August 14, 2017 Eastside Distilling (NASDAQ:ESDI) reported its 2Q17 results and held a conference call after the close of the stock market.

Case sales increased 46% Y/Y but were below our latest estimate; although six month case sales were in line with our forecast early this year. Revenue after excise taxes increased 32%. Excise taxes, as a percentage of gross revenue, increased to 31.5%, the second highest level over the past three years.
Inventory at the end of the quarter increased by 53% from first quarter levels. Valuation is on the lower of cost or market and is sold on a FIFO basis. The market value of the inventory is much higher than the value on the balance sheet.
Net price per case declined due to promotional discounts on the larger bottles of  potato vodka as well as market discounting by competitors in the Oregon market.
Portland Potato Vodka was the big winner in the quarter, and it has continued its growth, up over 62% as compared to August 2016. Brown spirits (bourbon and whiskey) continue to grow on an industry wide basis.
Based on the improved outlook for the third quarter, the influx of cash from the public offering (the conversion of the warrants as the stock price increases should offset the need for cash for more working capital) and pay down of debt we have raised our price target to $8 a share.
Based on the improved outlook for the third quarter and the cash from the public offering we have raised our price target to $8 a share.

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