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US: Castle Brands income hit by marketing costs

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Boosted by the performance of its vodka and whiskey brands, Castle Brands has reported first quarter net sales of US$5.6m, a 3% increase over the prior year quarter.

However, as a result of increased marketing costs, the company yesterday (13 August) reported a net loss of $4.4m for the period compared to $4.1m in the first quarter a year ago.

Led by a 28% increase in US case sales of Boru Vodka and a 98% increase in US case sales of whiskey, which includes growth resulting from the addition of the McLain & Kyne Bourbon brands, US case sales increased 5% year-over-year to 44,723 nine-litre cases.

Offsetting factors included a 6% decrease in rum sales following heavier distributor purchases at the end of the company's 2007 fiscal year in anticipation of price increases and a 19% decrease in US case sales of liqueurs due in part to the discontinuation of certain low-margin cream products, the company said.

International case sales were up 5% in the quarter to 29,447 cases. The slower growth versus historical quarters was primarily due to lower distributor orders of the old Boru package in anticipation of restocking for the international launch of the new Boru bottle in September, Castle said.

Mark Andrews, the company's chairman and CEO said: "The first quarter of our 2008 fiscal year saw a continuation of the momentum for our flagship brand - Boru Vodka, with US volume growth of 28% following 120% growth in the prior quarter. Despite an inventory build by distributors in our fourth fiscal quarter, we were glad to see that demand in the first quarter remained solid. Record levels of depletions (sales from our distributors to retailers) make us confident that sales for our current fiscal year should be strong."

Andrews continued: "Internationally, our distributor changes and the anticipated launch of the new Boru bottle caused a reduction of inventory of the old package at the distributor level in the first quarter. While these factors obviously depressed our sales during the first quarter, we look forward to increasing sales in the second and third quarters as the new distributors establish inventory for expanding markets and the new Boru packaging is introduced to the international market."

The company said that its selling expense increased 20% to $4.2m in the quarter ended June 30, 2007 from $3.5m in the prior year quarter. This support included increases in costs associated with the Boru relaunch, sales support costs and additions to the sales and marketing teams.


Sectors: Spirits, Wine

Companies: Castle Brands

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