EAST: Second quarter sales were in line with our estimate fueled by tremendous case growth. RRW demand still growing with further potential in NE U.S.A. Increasing target price to $10.
By Ian Gilson, PhD, CFA
NASDAQ:EAST
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Eastside Distilling's (EAST) second quarter gross revenue was $ 1.675 million, as compared to our estimate of $1.656 million. Lower than expected selling prices were offset by higher case sales. Redneck Riviera Whiskey (RRW) sales in 2Q18 were close to those of 1Q18 but the backlog has been building and 3Q18 should show significant growth as RRW is now approved for sale in 28 states. The North Eastern states are underrepresented but additional marketing resources are now available and more states should sign up by year end.
We estimate that RWW could be more than 20% of total net sales in 2Q18.
S.G.&A. expenses increase substantially as the company gears up for increased marketing support outside of the Pacific NW. Since a larger proportion of sales occurred outside of Oregon and were wholesale there was more excise tax but less sales tax so the spread between gross sales and net sales was less than in prior quarters.
The Vodka and Burnside products continue to do well and the single malt whisky has generated much interest. Eastside will probably add non alcoholic mixers later this year.
The canning operations have been strengthened by the addition of more and better equipment and it now has five customers.
Looking into the second half of the year revenue should hold up to the 2Q18 despite the seasonal decline that occurred in prior years.
Given the positive outlook for RRW, additional canning customers and the potential of new products we have increased our target to $10 a share.
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