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EAST: Significant increases in average price per case pushes first quarter revenue above our estimates. The higher asp should continue through the year. Operating income was in line with expectations.

By Ian Gilson, PhD, CFA


Eastside Distilling (NASDAQ:EAST) announced its results for the first quarter of 2018 on May 14, 2018 followed by a conference call.

Case sales were slightly above our estimates but a significant increase in price per case drove sales to a record high. The resumption of growth of the Burnside products after rebranding last year continues and sales now exceed the peak reached prior to rebranding. Gross margins improved versus 1Q17 and 4Q17. We expect gross margins to continue at close to this level for the rest of 2018.

Sales in Oregon continue to grow at an above average rate. Eastside has a good relationship with the liquor commission and Oregon revenue is growing at over 75% monthly Y/Y.

Redneck Riviera Whiskey continues to expand its geographical reach and shipments are being made to major new accounts. Entry into markets with sales to major grocery chains are being followed up by discussions at the corporate level, which could well be points of entry for other products.

At the recent 2018 San Francisco World Spirits Competition Eastside Distilling won 9 medals and Big Bottom Distilling won 5. This included a Double Gold for the Burnside Oregon Oaked Rye whiskey (every judge taste testing it gave a gold rating). The ratings can be part of the labeling (hanging a god ribbon round the neck of the bottle for example) which attracts more attention from the potential buyer)

In the 1Q18 S.G.&A expenses increased due to the addition of several senior people to the management team. This had a significant impact on profitability. Operating losses were in line with our expectations ($1.26A versus $1.25E million).

The new credit agreement will carry a much lower interest rate thereby lowering interest expenses. The excise tax legislation from 2017 had a positive impact and the 1Q18 excise tax rate should continue for the next few years unless legislation is changed.


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