Truett-Hurst shifts to new Paper Boy 'bottle' supplier

[caption id="attachment_87284" align="alignright" width="265"] The launch of the Paper Boy wine in a paperboard shell around a plastic bladder in November 2013 was key to a surge in Truett-Hurst sales for the quarter.[/caption]

HEALDSBURG -- Truett-Hurst, Inc., (Nasdaq: THST) said it is shifting to a U.S. supplier of the novel cardboard-and-internal-bag bottle for its Paper Boy wine brand and noted that the change would slightly increase costs.

The existing bottle producer in the United Kingdom, GreenBottle, Ltd., was placed into administration, that country's equivalent of reorganization in U.S. Bankruptcy Court, on Feb. 28, according to government documents. That prompted the inking of a new multiyear contract with a soon-to-be-disclosed domestic manufacturer, according to Truett-Hurst.

"While we expect to meet our fiscal 2014 Paper Boy sales goals we may experience an out of stock situation in early fiscal year 2015 due to the supplier change and expect to be back on target in mid-fiscal 2015," Chief Executive Officer Phil Hurst said in a statement. "We believe this new supply relationship will provide the stability the company requires to meet its PaperBoy sales goals."

The middle of fiscal 2015 would be July--September.

According to Truett-Hurst's stock perspectus, the company signed a seven-year deal with GreenBottle, of St. Helens, England, in February 2013.

"At the time we entered the agreement in February 2013, there wasn't any other paper bottle supplier in the world; this was cutting-edge," Chief Financial Officer Jim Bielenberg told the Business Journal. "The company we will use is gearing up to produce the product."

In its fiscal second-quarter financial report released Feb. 14, Truett-Hurst said its paper bottle supplier was having trouble keeping up with demand and was "working to resolve this issue." Paper Boy launched in Safeway grocery stores in November under a 90-day retail exclusivity agreement with Truett-Hurst. That was extended recently for California, but the brand is entering wider distribution in Florida, the rest of the East Coast as well as in Texas and Arizona.

That deal called for Truett-Hurst to pay $750,000 up front and purchase at least 3 million of the bottle-and-liner units in the first two years.

On Thursday, Truett-Hurst said it will take a one-time hit of about $400,000 for the deposit, affecting operating expense for the fiscal third quarter and nine months ended March 31.

So the company’s revised guidance for such expense in its third quarter is $8.0 million and $8.7 million, compared with previous guidance of $7.6 million to $8.3 million. No changes to net sales or gross margins are expected.

"We believe the financial impact is isolated to the third quarter of fiscal 2014 and are exploring our legal rights regarding the deposit and/or production of undelivered product from the European supplier," Mr. Bielenberg said in the statement Thursday.

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