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ESDI: Strategy change and increased G&A impacts 4Q revenue and earnings. Increased production of higher priced spirits should bolster margins.

04/07/2017
By Ian Gilson, PhD, CFA

OTC:ESDI

On March 31, 2017 Eastside Distilling (OTC:ESDI) filed its 10K for 2016 with the SEC and held a conference call on April 6, 2017 to discuss the results.

Gross sales declined from the 4Q15 due to a change in strategy made in the 3Q15. Revenue had been driven by volume and it was decided to emphasize higher margined products, albeit at lower price points, such as the popular Potato Vodka. One impact of this change was an increase in excise tax per case as a proportion of gross sales per case. Excise taxes are based on the alcohol content and do not depend on selling prices.

As we had mentioned special event and retail sales declined in 2016 due to fewer tasting rooms. This should reverse in 2017 since new rooms have been added. This revenue carries no distributor costs.

Sales outside of Oregon increased from $0.2 million to nearly $1 million, sales from retail operations declined from $1.3 million to $1.2 million and sales to the Oregon Liquor Control Commission increased from $0.7 to $0.9 million.

The company has announced its first sales in Alaska and we expect continued growth in sales outside of Oregon.

Eastside distilling stated that its ah sufficient cash and cash flow to carry it through the next twelve months. The costs of raising money had a significant negative impact on cash flow in 2016.

The company intends to move its spirits more into the Super Premium sector of the spirits market, with an emphasis on the Potato Vodka and the Burnside Oregon Oaked Bourbon (with a higher alcohol content). Since the company now has bottling capability it can offer private label spirits and small volume seasonal offerings at minimal extra costs and above average selling prices.

Other areas of revenue are e-commerce sales, but there may be legal problems since the laws on wine may not carry over to the spirits world.

Overall we have a positive outlook for increased revenue and declining expenses for 2017 and 2018.

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