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ESDI: Third quarter: Strong growth in case sales but limited availability of bourbons impacts profitability

By Ian Gilson, PhD, CFA


During the third quarter of 2017 Eastside Distilling (NASDAQ:ESDI) shipped a total of 6162 cases of spirits, an 55% increase from last year. This included private label shipments of 700 cases. Without the private label the increase would have been 37% Y/Y.
The change over in bourbon branding and case maturation as well as dislocations from moving to the new facilities limited the availability of the new bourbons but the popularity of the Portland Potato Vodka had a significant impact on case growth as well as the price realization per case. Vodkas sell at lower priced than other spirits and the gross selling price declined from $200 a case to $145 a case. The new vodka has a higher than average alcohol content (proof), as does the new bourbons, and this increases the tax per case. As a result the net revenue was below our expectations.
The company is redefining its retail presence in Oregon. Many of the mall locations do most of their business in the fourth quarter of the year whereas the expenses occur in every quarter. By eliminating locations during the slack months but opening more kiosks over the Thanksgiving to New Year drinking season overall sales at a much higher margin should ensue.
The new can lines now have the capability of making Ready To Drink cans and all of the necessary government approvals have been obtained. Eastside is now marketing this to potential customers. RDT gross margins are well over 60%.
Eastside Distilling and John Rich (a well known Country and Western singer and composer) have formed a subsidiary, Redneck Riviera Whiskey Co., a LLC in Tennessee. We expect significant news about this combination soon.
A 1,000 cases per month milestone was reached by Portland Potato Vodka in October, 2017, a triple in volume from October, 2016. This vodka is becoming a popular spirit in local bars.
The latest data from The American Craft Spirits Association (ACSA) outlined the continued growth of craft distilling in 2016 and into 2017.
Case volume increased by 18.5% in 2016, to 5.8 million cases. Retail sales grew by 25% to $3 billion. The market share of U.S. craft spirits more than doubled in value, from 1.2% to 3.8%. Exports grew by 8.2%.
More relevant to ESDI is that distillery and tasting room sales 34% of all sales for small craft distilleries whereas for large craft distilleries 58% of their total business was out of state.


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