Casamigos “On Track” to Meet Diageo Benchmarks

Dear Client:

In 2017, Diageo purchased George Clooney’s tequila brand, Casamigos, for a whopping $1 billion. There was a lot of “sticker shock and downright skepticism” over the price tag and Diageo’s projection that the deal would reach its cost of capital by the fourth year of ownership. But turns out they’re on track to do just that, according to a recent Bernstein note.

You may recall, the terms of the deal were: Casamigos was initially paid $700 million, with another $300 million to be tacked on when/if it meets performance goals over the next 10 years [see WSD 06-21-2017].

During the first 12 months of ownership, Casamigos contributed just over $77 million to Diageo’s net sales. By the fifth year (2021-2022), Bernstein estimates Casamigos will generate $428 million in net sales at a 25% growth rate.

Moreover, the current EBIT margin on Casamigos is about 30% and thanks to its premium price tag ($50+ per 750ml), margins should hit 50% by about 2022, according to Bernstein.

“It’s not crazy to imagine that Casamigos could beat its cost of capital in year 3, based on a purchase price of $700 million. But if Diageo starts to pay out the bonus payments, it can only mean that everything is on track or better,” writes Bernstein analyst Trevor Stirling.

Justifying the large price tag, Diageo North America chief Deirdre Mahlan said at the time of the purchase that the company took into account how important the brand is strategically and its acceleration, determining that there was “significant opportunity to get that value” because of the brand’s “significant amount of runway potential” [see WSD 60-21-2017].

The brand continues to grow like gangbusters. In the latest three months to January, Casamigos volumes were up 85% in NABCA data and 75% in Nielsen-measured channels.

TRUETT-HURST TO STOP TRADING ON NASDAQ

On Friday, Truett-Hurst announced that its board of directors has decided that the company will voluntarily delist its common stock from the NASDAQ as well as deregister with the Securities and Exchange Commission, per a release.

The decision to delist and deregister was based on several factors including:

  • the significant costs and administrative burdens that come with preparing and filing current and periodic reports with the SEC;
  • demands placed on management to comply with registration requirements such as compliance costs;
  • low trading volume and number of stockholders;
  • failure to fully realize the benefits of being publicly-traded; and
  • the expectation that the company does not need to access the capital markets in the future.  

It will officially stop trading on the NASDAQ by the end of the month.

FLORIDA LOOKS TO LEGALIZE RECREATIONAL WEED

Florida is the latest state to take up the recreational marijuana issue, proposing a bill that would legalize recreational use and regulate the cannabis market similar to alcohol, per a local news affiliate.

HB 1117 would allow adults 21+ to possess, use and transport up to 2.5 ounces of marijuana and grow up to six plants. Though it would still be illegal to toke up in a public space.

Moreover, the bill would also limit the number of businesses that sell cannabis within a certain area and local governments will still be able to prohibit cannabis businesses from setting up shop in their cities.  

WSD BRIEFS:

J. RIEGER & CO. BEEFS UP HOSPITALITY TEAM. J. Rieger & Co. has made several key additions to their hospitality management team, including Joe Hines as gm – retail operations, Andrew Olsen as beverage director, Andi Ryan as hospitality director and Amber Benton as event sales manager. The company has also released details about its new spirits destination experience. The distillery space is expanding to 60,000 square feet and is scheduled to open mid-June 2019.

J.J. CORRY LAUNCHES LIMITED EDITION IN THE US. J.J. Corry has launched a limited-edition whiskey, J.J. Corry, The Flintlock 16-Year-Old Single Malt, in the US. It is named after a pistol that was found during the renovation of a 16th century barn on the McGuane family farm. It will be imported by CompassPoint Imports and will be available to purchase in NY, MA, CT, TN, GA and online for delivery. It is available at a suggested retail price of $125 a 750 ml.

LIMESTONE BRANCH DISTILLERY REVAMPS MINOR CASE BRAND DESIGN. Limestone Branch Distillery’s Minor Case Straight Rye Whiskey bottle has a new look. The new bottle has white paint over the embossments, highlighting the intricate font and design. Minor Case is available nationwide with a suggested retail price of $43 a 750 ml.

Until tomorrow,
Sarah

“There cannot be a crisis next week. My schedule is already full.” – Henry Kissinger     

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