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EAST: First quarter revenue in line with our projections. Gross margins were impacted by product mix changes and the inclusion of CC+B canning operations. We expect improvements in margins as the year progresses.

05/13/2019
By Ian Gilson, PhD, CFA

NASDAQ:EAST

READ THE FULL EAST RESEARCH REPORT

Eastside Distilling (NASDAQ:EAST) announced it 1Q19 results on May 13, 2019 followed by a conference call.

Revenue was slightly higher than expected ($3.7 million actual versus $3.5 million estimated).

Cost of sales were impacted by the addition of the canning operations of CC+B and the increasing proportion of sales from RRW and Potato Vodka. Raw material costs continue to increase due to increasing costs at their largest raw material supplier. We expect gross margin improvement as the year progresses.

The canning operations are running flat out. Capacity will be added to meet both increasing internal demand and the growing needs of customers. The RTD [Ready to Drink] market is growing rapidly (239,945 cases were co-packed in 1Q19 as compared to 1,428 in 1Q18).

Riviera Redneck Whiskey [RRW] is now available in 46 states. 6,300 cases were sold in 1Q19. The addition of the 1.75 l bottle and the Granny Rich premium whiskey have been well accepted. We expect the growth of RRW to slow down from its current torrid pace as geographical expansion slows.

Eastside Distilling has established a subsidiary, Outlandish Beverages LLC, for the marketing and sale of CBD beverages. As noted below (page 3) CBD beverages is projected to be a large and rapidly growing segment of the beverage market. CBD sale and use is legal in Oregon and Outlandish is expected to introduce three RTD 187 ml cans into this market in 2Q19. These will be soda water, ginger based and quinine based and will be sold through on premises (bars and restaurants) and off premises (liquor stores).

On May 10, 2019 the company announced the immediate introduction of the award winning lineup of Burnside Whiskey and Bourbon into California. Based on the many wholesale distributors and national corporate retail accounts across the country that carry RRW, and the strong brand awareness of John Rich, the entrance of the Burnside range of spirits is a natural progression towards strong sales in the largest spirit consuming state in the U.S.A..

Doubling up at Walmart! Eastside has announced that Walmart will stock Riviera Redneck Whiskey in another 856 stores across 17 states, in addition to the 350 locations previously announced. Each store will add 24 bottles (750ml) to its inventory effective June 2nd.

We assume that the reception to the prior stocking at Walmart was positive and led to the mandated authorizations to stock RRW in the stores.

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