Castle Brands Inc (NYSEMKT:ROX) has been a monster mover on the NYSE over the past two months, ever since the company announced a distribution agreement with Walmart. That announcement hit on February 28, and really defines a new era for shares of the stock, which are up as much as 140% since that news hit. We profiled ROX to our subscribers when it was trading at mere 99 cents. ROX hit our radar after this Forbes post stated that Dr. Phillip Frost owns 33.5% of ROX.
More recently, the company announced that it has acquired an additional 20.1% stake in Gosling-Castle Partners Inc., its strategic global export venture with the Gosling family. According to the release, GCP holds the exclusive long-term export and distribution rights for Goslings Rum and Goslings Stormy Ginger Beer for all countries other than Bermuda. As noted in press materials, the transaction increases Castle Brands ownership of GCP to 80.1% and will enable consolidation for tax purposes.
Castle Brands Inc (NYSEMKT:ROX) is a developer and international marketer of premium and super-premium brands including: Jefferson’s, Jefferson’s Presidential Select, Jefferson’s Reserve, Jefferson’s Ocean Aged at Sea Bourbon, Jefferson’s Wine Finish Collection and Jefferson’s Wood Experiments, Goslings Rums, Goslings Stormy Ginger Beer, Knappogue Castle Whiskey, Clontarf Irish Whiskey, Pallini Limoncello, Boru Vodka, and Brady’s Irish Cream.
The stock is similar to Constellation Brands, Inc. (NYSE:STZ), Diageo plc (ADR) (NYSE:DEO), and Brown-Forman Corporation (NYSE:BF.B) in many respects, and may pose a competitive risk to these names as a market disruptor with its recently widened distribution channel. Earning a current market cap value of $267.2M, ROX has a bankroll ($938K) of cash on the books, which stands against virtually no total current liabilities. ROX is pulling in trailing 12-month revenues of $74.7M. In addition, the company is seeing major top line growth, with y/y quarterly revenues growing at 6.4%.
A Foot in the Door
As noted above, back in late February, the company announced an agreement to supply Goslings Stormy Ginger Beer and Goslings Stormy Diet Ginger Beer to all U.S. Walmart stores.
John Glover, Chief Operating Officer of Castle Brands said, “Supplying Walmart with both the Regular and Diet Goslings Stormy Ginger Beer adds to the brand’s impressive growth and strengthens our position in the U.S. market. We are pleased that Walmart has implemented a full store roll-out. We look forward to working with Walmart to promote the continued success of Goslings Stormy Ginger Beer.”
That gets a foot in the door at a massive consumer output channel for a key asset. It should also suggest why we now see the company expanding its stake in Gosling-Castle Partners Inc.
In a related development, Castle Brands announced that GCP’s exclusive export agreement with Gosling’s Export (Bermuda) Limited and exclusive distribution agreement with Castle Brands have been extended through March 31, 2030, with ten-year renewal terms thereafter.
Management has had a lot to add here, and the commentary reveals a bit more about where this is headed:
“Since Castle Brands joined forces with the Gosling family to form GCP in 2005, sales of Goslings Rum have grown rapidly in the United States and internationally. Sales were approximately 170,000 cases (9L) during the 12 months ended December 31, 2016. In addition, we have worked together to launch and grow Goslings Stormy Ginger Beer, used in the trademarked Dark ‘n Stormy® cocktail, an important driver of Goslings Rum sales. Sales of Goslings Stormy Ginger Beer were approximately 1,325,000 cases during the 12 months ended December 31, 2016. We are very glad that we have increased our ownership of GCP and have extended the terms of our Goslings agreements,” stated Richard J. Lampen, President and Chief Executive Officer of Castle Brands.
“The Goslings family has produced Goslings rum in Bermuda for 200 years. Because we realized that the brand had great potential in the U.S. and internationally, we initiated sales in the U.S. almost 20 years ago. By joining together with Castle Brands in 2005, we sharply accelerated that growth by gaining a very strong sales force, top-tier distributor relations and substantial infrastructure to support operations. We are excited to be taking these important steps to expand the relationship with Castle Brands,” said Malcolm Gosling, President and Chief Executive Officer of GCP.”
As noted earlier, the stock has been red hot over the past couple months, with another 35% piled on for shareholders of the name during just this past month. It’s also worth noting that this trend has been supported by a hefty helping of new trading interest as highlighted by the 290% jump in average daily trading volume on record over the past month.
This extra interest suggests the vestiges of a sustainable trend so long as the narrative now in place can hold up for the stock. At the very least, this is a story worth keeping on your screens as momentum and interest build.