Truett-Hurst, Inc. (NASDAQ: THST) is a holding company, and its sole asset is the controlling equity interest in H.D.D. LLC, an innovative super-premium, ultra-premium and luxury wine sales, marketing and production company based in the acclaimed Dry Creek Valley of Sonoma County, California. Truett-Hurst, Inc. is headquartered in Healdsburg, California.
The company was recently featured in the most active list and its shares skyrocketed with incredibly strong volumes after it announced that its sold it wholesale wine business to Precept Brands for about $18M in cash.
As per the announcement on August 13th, the transaction is expected to result in proceeds of approximately $15.9 million for the Company, and after payment of bank debt and certain transaction expenses, the Company expects to have approximately $5.6 million of cash.
Truett-Hurst’s wholesale wine business consists of the Company’s wholesale bottled wine inventory, brands, supplies and bulk wine inventory used for the Company’s “control label” wine brands and related intellectual property. These wholesale brands are produced under a variety of labels and sold primarily to national retail chains. The Company will retain its Direct to Consumer business and Dry Creek Valley Estate in Healdsburg, California.
Expected synergies from the deal:
- Operational synergy: With the aforesaid agreement, the company has entered into a very sweet spot, as the sale of wholesale wine business will allow it to focus all of its resources on its principal core brands of “Truett Hurst” and “VML” which are primarily sold at the Truett Hurst Winery in Healdsburg, to Wine Club members via direct shipments and to select retailers around the country.
- Financial synergy: The Company expects to use the proceeds from the sale of the wholesale wine business to eliminate indebtedness and to invest in its direct to consumer business. The Company will also consider using a portion of the purchase price to provide returns to the Company’s public stockholders.
Prior to this, on May 15th the company announced financial report for March 31st, 2018, For the nine months ended March 31, 2018, net sales increased $1.5 million or 9%; however, consolidated gross profit decreased slightly from 34.7% to 33.6% compared to the same period during the prior year. Net sales for the nine months ended March 31, 2018, increased over the previous year despite the falloff from a significant customer that is undergoing a substantial change in distribution tactics.
The fundamental situation for THST is rapidly improving, with the recently announced deals, we now have the new key drivers behind this stock that could make it go higher from here. Also, the deal is likely to provide operational and financial leverage, which promises improved yields and financial flexibility. Analysts tracking the stock believes that the company is available cheaply given the growth that’s reflecting on the chart.
Key premium brands:
Critical Strategic objectives and unique differentiating factors:
Developing innovative retail exclusive products that meet the needs of wine retailers. The Company has a reputation for developing innovative retail exclusive brands and working with retailer partners on unique programs to support sales of those products. With branding expertise, the Company intends to continue innovation and build its market share with global wine retailers who are focused on increasing their profitability through retail exclusive offerings.
- Growing the customer base to include additional major U.S. retail chains. The Company is actively pursuing relationships with the largest retail chains in the United States.
- Expanding the direct to consumer business. The wine clubs continue to grow due to growing consumer awareness of the brands from targeted public relations, exciting wine club events, and advertising. The direct to consumer business generally generates relatively higher gross margins.
- Marketing to key international markets. During FY14, the Company completed an agreement with the Trialto Wine Group, LTD, based in Vancouver, Canada, creating a national partnership to distribute the Truett-Hurst family of brands throughout Canada. The Company also continues to review selective brand development and distribution opportunities in other international markets.
- Developing new ways to engage customers and to distribute products. The Company believes that traditional wine marketing, to some degree, has stymied creativity and believes the innovative branding expertise allows the Company to capitalize on evolving customer demands rapidly.
Latest Quarter Financial position:
THST has a FYE of June 30th.
Revenue and yields: For the three months ended March 31, 2018, net sales increased $1.2 million or 22%, and consolidated gross profit margin decreased from 37.9% to 35.4%, compared to the same period during the prior year. For the nine months ended March 31, 2018, net sales increased $1.5 million or 9%; however, consolidated gross profit decreased slightly from 34.7% to 33.6% compared to the same period during the prior year. The decrease in gross profit during the quarter and nine months ended March 31, 2018, was primarily due to an increase in the cost of sales attributable to higher case sales, and an increase in discounts which contributed to lower net sales. Also contributing to the lower gross profit during the nine months ended March 31, 2018, is an increase in inventory reserves and write-offs.
Liquidity: The Company had approximately $1.0 million of availability under its revolving credit facility as of March 31, 2018, compared to $3.0 million as of June 30, 2017. During the third quarter of the fiscal year 2018, the Company’s average borrowings outstanding under its revolving credit facility were $8.8 million compared to average borrowings of $4.2 million in the prior year.
Key risk factors and potential stock drivers:
- Notwithstanding, management’s focus on deleveraging its balance sheet, the company continues to face challenges with its liquidity. Therefore, the terms of the Company’s current bank loans may restrict existing and future operations, which might adversely affect the Company’s ability to respond to changes in its business and to manage its operations.
- The company’ business risk profile would continue to remain constrained due to the intense competition and regulated nature of the industry which could restrict its growth and margins to a certain extent.
- The stock performance can improve significantly if substantial growth in revenue and profitability strengthen the financial risk profile and overall debt metrics of the company.
- Premiumization is expected to support revenue growth going forward – Changing consumer preferences towards premium brands in conjunction with continued marketing efforts being made by the company is expected to support long-term revenue growth of the company.
Stock Chart:
Comments:
- On Wednesday, August 15th, 2018, THST shares were at $1.74 on traded volume of 303K shares exchanging hands. Market capitalization is $8.7 million. The current RSI is trending at 58.73
- In the past 52 weeks, shares of THST have traded as low as $1.26 and as high as $3.19
- At $1.74, shares of THST are trading above its 50-day moving average (MA) at $1.50 and below its 200-day moving average (MA) at $1.78
- The present support and resistance levels for the stock are at $1.07 & $2.80 respectively.
Disclaimer
Traders News Source is a wholly owned subsidiary of Traders News Source LLC, herein referred to as TNS LLC.
Traders News Source has not been compensated for this report by anyone and the opinions if any are that of the author Vikas Agrawal, CFA. Author’s Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I, wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in the article.
This web site, published by TNS LLC, and is an investment newsletter that is built on the premise of assisting individual investors in learning about investing. Our goal as publishers of financial information is to provide research and analysis of investments to our subscribers. TNS LLC does not give buy or sell recommendations. We do purchase distribution rights from analyst, financial writers and bloggers for a fee that may be licensed to issue price targets and recommendations. Furthermore, we encourage you to speak to a licensed professional prior to making an investment in any type of publicly traded security.
We do sell advertising to other companies including brokerage firms, web sites, publicly traded issuers, investor relations firms, and investment publications, among others. TNS LLC makes no warranty as to the policies of these organizations, and in no way endorses their offers, services, or the content of their advertisements.
When an advertiser is a publicly traded company or a third party acting on behalf of a public company, we fully disclose all compensation in the email advertisement. Such disclosure is included in a disclosure statement in each of the advertisements sent via email.
17B Disclosure
Our reports/releases are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our services, joining our site or our email/blog list as well as any social networking platforms we may use.
PLEASE NOTE WELL: TNS LLC and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever.
Release of Liability: Through use of this website viewing or using you agree to hold TNS LLC, its operator’s owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. TNS LLC encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled or is available from public sources and TNS LLC makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provide herein. Instead TNS LLC strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D.
TNS LLC is compliant with the Can Spam Act of 2003. TNS LLC does not offer such advice or analysis, and TNS LLC further urges you to consult your own independent tax, business, financial and investment advisors. Investing in micro-cap and growth securities is highly speculative and carries an extremely high degree of risk. It is possible that an investor’s investment may be lost or impaired due to the speculative nature of the companies profiled.
The Private Securities Litigation Reform Act of 1995 provides investors a ‘safe harbor’ in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be “forward looking statements”. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as “projects”, “foresee”, “expects”, “will”, “anticipates”, “estimates”, “believes”, “understands”, or that by statements indicating certain actions & quote; “may”, “could”, or “might” occur.
Understand there is no guarantee past performance will be indicative of future results. In preparing this publication, TNS LLC has relied upon information supplied by its customers, publicly available information and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. The advertisements in this website are believed to be reliable, however, TNS LLC and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. TNS LLC is not responsible for any claims made by the companies advertised herein, nor is TNS LLC responsible for any other promotional firm, its program or its structure.
