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Drinks Americas Stock Plummets...What's Wrong With This Producer of Trump Vodka?
About twelve months ago, Drinks Americas made a huge splash with the release of their premier brand, Trump Vodka. Distributors nationwide lined up to handle the product, the press lined up to trumpet its release and the company's publicly traded stock, traded under the symbol DKAM, soared to over $3.00 a share.
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Currently the stock is only trading in the $.30 to $.40 range and if this price per share is any indication, as it usually is, there is something drastically wrong with this company or product.
For all of the Drinks shareholders, I'd like to take a look now at some of the issues that may be facing the company and some of the changes Drinks may implement to help turn things around in the near future.
Let's take a look first at some of the issues confronting the company:
Cash: In real estate it is said that the most important aspect is location, location, location! With any small growing company, the most important aspect is cash, cash, cash! Drinks raised several million dollars via a private placement last spring, but as of the latest financials, most of this cash had already been spent. They seemed to put a fair amount of this money into inventory, (cases, bottles etc...) which is not a bad idea...unless of course, sales slow and your cash is tied up in inventory sitting on your floor. Furthermore, I see that the company is factoring their receivables in order to receive cash from their sales earlier than they would normally be paid from their distributors. This is not a practice I would endorse, however, as the cost of this form of financing is relatively spendy and these costs further eat into your profits. The need for this type of financing also points out to me a desperate and very cash starved company. Lastly, if the company is low on cash, it would seem to make the successful release of any new brands next to impossible.
The Trump Deal: Drinks agreed to pay so much to put the Trump name on their product, that I'm not certain they can make money with this brand. Between the money they are paying Trump for each bottle they sell and the scary minimum yearly payments they must make to Trump, regardless of how much they sell, I don't see this brand throwing off much cash to the company in the near term.
Did they hit their Projections?: For some time now Drinks management has been stating emphatically that the company will sell 100,000 cases of Trump Vodka in it's first year on the market. If the company is to fall short of this goal, it would certainly signal a cause for concern. It's not so much that 80,000 cases instead of 100,000 cases signals the end of the brand, but it might cause the end of investor's belief in management's projections.
Trump Sales are slowing: I personally witnessed a slowdown in consumer demand for Trump early last summer. Whether the novelty had worn off, or people were simply Trumped out by all of the different products Trump is promoting, consumer interest in Trump Vodka waned. Today distributors are actively soliciting sales of old product prior to receiving new product and offering discounts in order to help accomplish this. (This is pretty standard in the industry, so this alone would not be a cause for concern.) If Drinks had the funds available, this would be a great time to support the product with some type of marketing...even if it's simply point-of-sale material.
Well, these are some pretty serious issues and they might help account for why the stock is trading where it is today. The situation does not appear to be hopeless though, so let's now take a look at some constructive ideas on how management might turn this around:
Say what you mean and mean what you say. The re is nothing wrong with a little spin in business, in fact I think it's necessary, but if management comes out with anymore sales and 'deal' projections, they had better be correct. At this point I doubt they will sell 100,000 cases of Trump in this first year; the flavored Trump products are late and perhaps shelved; and any announcements regarding individual agreements with Interscope artists are also late. These factors all raise concerns and from this point forward, management needs to err on the side of being conservative with their projections.
Continue to add foreign sales: Although selling vodka to Russia seems akin to selling ice to Eskimos...Drinks recently announced a sizable agreement to sell Trump Vodka in Russia. It seems to me the Trump name works almost better internationally than it does here in the states (although maybe not in Scotland) and it seems this could be a huge market for Trump Vodka.
Make certain that any Trump 'flavors' that are released are successful. There are loads of flavored vodkas on the market and you can no longer simply release a flavored product and expect it to be successful. If Drinks still plans to release any Trump flavors, they need to make them special; make them different; make them make sense; and make them the very best in the market. For example, how about Trump-Big Apple Vodka. To me this makes sense. Make this vodka from the best apples money can buy, perhaps from a pristine orchard in upstate New York, and you might be on to something. Tie in promotions like trips to the 'Big Apple' and make sure to position this as New York's Vodka, release it in limited numbers and there is a good chance you've got a winner on your hands.
Make your first Interscope deal a blockbuster one. This tie in with the music industry is a great concept, but the success of this whole program might hinge on the success and/or perceived success of the first partnership announced. Make this deal big and make this deal good!
Make sure you've got cash. I know management has continued to state that they have enough cash to execute their business plan, but I'm not so sure they do. I know all investors hate dilution, but I imagine they would hate a bankrupt company even more. If you have to bite the bullet and offer more stock to keep your business afloat, then bite the bullet and do it! (Although with the common stock at $.35 a share this might be a moot point.) And, if and when you do bring in this cash, value it like nothing else. This cash is the lifeblood of your company... sacrifice salaries, sacrifice plush offices, sacrifice travel, sacrifice the next can't miss marketing idea...but do not, under any circumstance, sacrifice your cash!!!
Well that's it...it's seems to be an uphill, but not an impossible battle. Drinks has been in tough positions before and management has been able to pull some rabbits out of their hats. Also, very importantly, management appears to be fully invested in the company for the long haul.
I would like to close by saying that I hold no stock position in Drinks Americas, either long or short, although I have watched this company and their stock very closely over the past year. Additionally, all of the preceding information is simply my humble opinion and I urge all investors to perform their own due diligence before deciding to purchase or sell this or any other security. Finally, I would like to say that I wish the Drinks team all of the success in the world, this is a fun company with some novel ideas and I hope to see and enjoy their products for many years to come!
For more information contact:
Paul Brown
Email:pbrown377@tampabay.rr.com
URL:http://drinksfoodandfun.blogspot.com/
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