Holt’s Cigar Holdings, Inc.

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Holt’s Cigar Holdings, Inc.

12270 Townsend Road
Philadelphia, Pennsylvania 19154
U.S.A.
Telephone: (215) 676-8778
Toll Free: (800) 523-1641; (877) 464-6587
Fax: (215) 676-0438
Web site: http://www.holts.com

Private Company
Founded: 1911 as Holt’s Cigar Co.
Employees: 70
Sales: $32.92 million (2000)
NAIC: 42294 Tobacco & Tobacco Product Wholesalers;
453991 Tobacco Stores; 551112 Offices of Other
Holding Companies

Holt’s Cigar Holdings, Inc. is a holding company that, through its operating subsidiaries, is a leading wholesaler and retailer of brand-name premium cigars and smokers’ accessories. Holt’s owns the Ashton brand of premium cigars and is its exclusive wholesale distributor. The company maintains three retail stores and its distribution center in Philadelphia, from where it sends out a mail-order catalog twice a year. The company handles over 170 brands of premium cigars.

Philadelphia Institution: 1911–97

Holt’s Cigar Co. was founded in 1911 and operated a small store across from Philadelphia’s City Hall, selling cheap “seconds” or “closeouts” to bargain hunters. In 1957 Albert Levin, a Philadelphia manufacturer of women’s blouses who had closed this operation, purchased Holt’s Cigar Co. for about $40,000. The company’s annual revenues came to between $100,000 and $200,000 at the time. A mail-order division was added by the early 1960s for select retail customers. Albert’s son Robert began working in the store while still in grade school, sweeping floors, packing shipments, and taking inventory. He joined the company full-time in the early 1970s. Although he planned to stay only briefly, he found he enjoyed the business and succeeded his father as chairman, president, and chief executive officer in the late 1970s.

The focus of the business changed in 1980, when Levin purchased H.A. Tint & Sons. Founded in 1898, Tint & Sons was Philadelphia’s store for quality cigars—especially Cuban cigars before the embargo—but its business had declined to about $250,000 in annual revenue, and it had lost its lease. The Tint purchase, for between $50,000 and $100,000, marked Holt’s Cigar’s entry into the premium cigar market. Premium cigars are defined by the company as generally imported, hand-made or hand-rolled, with long filler and all-natural tobacco leaf, selling for more than $1 each retail. In the mid-1980s Holt’s sales volume passed $1 million a year. Most of the revenue was in cigars, but the company also sold pipes and had started to sell pens as well.

One area of the Holt’s business not proving lucrative was importing/distributing. When the company bought Tint, it was importing Consolidated Cigar Co. products from the Canary Islands. At this point Consolidated moved the operation to the Dominican Republic. When it experienced major quality problems, Consolidated designated Holt’s and about 15 other retailers to be its U.S. distributors. Competition between these retailers became so intense that Levin dropped out. However, the experience convinced him that he could market his own proprietary brand. A friend who was the importer and distributor of Ashton Pipes, an English manufacturer, suggested that he use the Ashton name for the product, thereby building up brand recognition for the pipes as well. Holt’s introduced Ashton in 1985 and later purchased the name from the pipe manufacturer. This top-of-the-line cigar was originally made by a firm named Tabadom, with production reaching 300,000 a year by 1988, when Levin turned to a cigar manufacturer in the Dominican Republic named Carlos Fuente, Jr., for the filler and binder, with a Connecticut shade wrapper added to the product. The company subsequently added its own Holt’s brand of premium cigars, sold—unlike Ashton—exclusively through its retail stores and catalogs.

Holt’s Cigar’s sales of its proprietary brands were slow at first but increased with the cigar boom of the 1990s, which in some ways paralleled the growing penchant of affluent Americans for gourmet coffee, fine wines, single-malt scotch, and microbrewed beers. By quantity, U.S. cigar consumption peaked in 1973, but cigar smoking increased measurably in the early 1990s, and premium cigars led the way. The number of premium hand-rolled cigars sold in the United States rose from about 100 million in 1992 to about 280 million in 1996. Holt’s own cigar sales reached about 2.8 million in the latter year. The company’s revenues increased from $3.04 million in fiscal 1993 (the year ended March 31, 1993) to $5.67 million in 1995 and $9.47 million in 1996.

In May 1995 Holt’s moved its downtown retail store to Walnut Street, spending $800,000 to renovate the building. This store was an instant hit, soon selling over 2,000 cigars a day at prices between 30 cents and $30. It included a 1,200-square-foot walk-in humidor, a smoking lounge, and display space for cigar accessories, some of them valued at $6,000 or more. A climate-controlled room with 56 storage lockers for cigars was fully leased, at $400 a year each. “The new store is beyond my wildest expectations and dreams,” Levin told Marvin R. Shanken of Cigar Aficionado in 1996. He added that the smoking lounge had been “mobbed ever since we opened the store up. From lunch time on until we close, there are people in there.”

The 8,000-square-foot distribution center in northeast Philadelphia was also the site of Holt’s executive offices and its mailorder operation, which was sending out 70,000 catalogs three times a year. The company also maintained a small retail space and cigar club at the First Union Center, home of professional basketball’s Philadelphia 76ers and hockey’s Philadelphia Flyers. It also sponsored cigar dinners in the Philadelphia area. Nearly three million Ashtons were being sold a year by the company and also by 1,000 retail tobacco stores across the United States. The Walnut Street store represented about one-third of Holt’s revenues, the catalog operation another third, and the Ashton brand the remaining third.

So sudden and overwhelming was the cigar boom that Levin and other cigar merchants were having trouble finding enough quality product to sell. “You have to use tobacco that’s been properly aged,” Levin explained to Shanken. “Therefore, there can only be so much increased production every year because you still have to use tobacco from the 1991 and 1992 crops, which was before the boom started.” Holt’s had a back order of about three million cigars in late 1996 and was hoping to receive 4.5 million cigars in 1997. “I think if I had 10 million cigars now, I could sell 10 million cigars,” Levin told Shanken.

In April 1997 Holt’s Cigar entered a manufacturing agreement with Fuente Cigar Ltd. The Fuente family agreed to sell Holt’s a minimum of five million premium cigars per year for an initial term of ten years, including the Ashton and Holt’s brands and others made by Fuente under its trademarks. By 1997 Fuente Cigar employed more than 1,900 workers in four factories and, during Holt’s fiscal year, supplied the company with 47 percent of the premium cigars it purchased. The Fuente Investment Partnership took a 24 percent stake in Holt’s, and two members of the Fuente family became directors of Holt’s.

Public Company: 1997–2000

After rising by 30 percent in 1995, sales of premium cigars soared 68 percent in 1996. Wall Street had already hearkened to the call of profit, and in November 1997 Holt’s Cigar took advantage of the boom in its business by issuing its initial public offering, selling 1.75 million shares—about one-fourth of the total—to the public at $11 each and collecting net proceeds of $17.1 million. Holt’s net sales had nearly doubled again in fiscal 1997, to $17.28 million. Of this total, wholesale and mail-order operations accounted for 38 percent each and retail for the remaining 24 percent. Holt’s net income increased more than fourfold in fiscal 1997, reaching $2.28 million.

Sales of Ashton accounted for about 45 percent of Holt’s Cigar’s revenues in fiscal 1998, and it ranked in a survey as one of the top three U.S. best-selling cigar brands. Holt’s established its own sales force for Ashton to replace its prior reliance through brokers and subcontractors and introduced an advertising campaign featuring an illustration of a cherub and the slogan, “Good for the soul.” The company also became exclusive U.S. distributor for three more brands: the Savoy, from Ecuador, aimed at the price-conscious smoker; the full-flavored Castano, made in Honduras; and the Premium Dominicana, produced by Fuente Cigar. These brands were to be combined with Ashton as “Ashton Brands” in the ad campaign. Holt’s also introduced its first cooperative campaign, sharing the cost of Ashton advertisements with retailers who, in return, were allowed to publicize their stores.

Holt’s Cigar’s revenues increased 70 percent in fiscal 1998—three-quarters of it in calendar 1997—to $29.07 million, while net income doubled to $5.04 million, and the company extinguished its small long-term debt. Some of the money raised from its earlier sale of stock was to be used to establish retail stores in other cities, according to the company’s prospectus. But the cigar boom was over by 1998. This was reflected in Holt’s fiscal 1999 performance. Net sales barely increased from the previous year, to $30.53 million, and net income fell to $3.64 million. Levin continued to establish new supply relationships, however. In June 1999 the company signed an agreement with Antillian Cigar Corp. to become the exclusive U.S. distributor for Sosa, Sosa Family, and Imperio Cubano premium cigars. The Sosa and Sosa Family brands each came in nine different sizes and shapes, while the Imperio Cubano brand consisted of 15 different sizes and shapes. (The Sosa brands were also being produced at a Fuente factory.) Holt’s also entered a five-year agreement with Kapp and Peterson Ltd. to serve as the exclusive distributor in the United States for Peterson of Dublin Pipes, a full line of premium, hand-crafted pipes imported from Ireland.

Company Perspectives:

Since 1957, Albert and Jean Levin and son Robert in 1974, have operated the company with one clear philosophy: to provide area cigar smokers with the best products at a good value along with the best customer service in the business. The formula has worked and Holt’s Cigar Company continues to be successful .

Holt’s Cigar’s net sales rose modestly in fiscal 2000, to $32.92 million, but net income decreased slightly, to $3.24 million, due to major investments in co-op advertising programs and promotion expenses, customer-service staff additions, and the hiring of staff to monitor and maintain the company’s e-commerce debut. Ashton Virgin Sungrown (VSG) cigars—dubbed “robust and potent” by the company—were among the cigar market’s hottest items. Ashton VSG was said to be the fourth most requested brand in the United States and enabled the Holt’s wholesale division to outperform the market substantially, according to Levin.

Shares of Holt’s Cigar common stock were trading at about $3 each in November 2000, when the company announced it would go private again. Shareholders other than Levin (who owned about 45 percent of the company) and Fuente Investment Partnership (which owned about 29 percent) received $5.50 a share for their stock, or half what investors paid for the stock when the company went public in 1997. “I think going private is the right thing to do,” a financial analyst told Harold Brubaker of the Philadelphia Inquirer. “When Holt’s came public, cigar companies were hot,” he said, adding that the reason for the stock’s fall in price was not so much a function of disappointing earnings but a loss of investor interest in the industry. A sufficient number of shares had been tendered for the privatization of the company to be accomplished by the end of the year.

Holt’s Cigar in 2000

Premium cigars accounted for 98 percent of Holt’s net sales in fiscal 2000. The company was marketing more than 170 brands, ranging in price from $1 to $28 per cigar. Foremost of these was the Ashton brand, composed of 30 different sizes and shapes, with retail prices between $4.50 and $17 each. Targeted at the upper end of the premium-cigar market, Ashtons were normally aged after the manufacturing process from three months to one year in specially constructed climate-controlled aging rooms. The Holt’s brand consisted of 18 different sizes and shapes, with retail prices generally between $2.75 and $4.50. These cigars were at the middle of the premium-cigar market. The Sosa brand was selling at retail prices generally between $3.50 and $6.75 per cigar; the Sosa Family brand for between $3 and $7; and the Imperio Cubano brand generally between $4 and $9. Holt’s also was selling a broad range of cigar accessories, such as humidors, cigar cutters, cigar cases, lighters, and ashtrays. In addition, the company offered a limited selection of other tobacco products, including mass-market cigars, smokeless tobacco, pipes, pipe tobacco, and pipe accessories. A limited number of imported cigarettes were sold only through the retail stores.

Wholesale operations accounted for 53 percent of Holt’s Cigar’s net sales in fiscal 2000. The company’s distribution center in northeastern Philadelphia had grown to 21,360 square feet by this time, including a humidified and climate-controlled cigar-storage warehouse of about 5,000 square feet. It was also the site of mail-order operations. Holt’s Cigar’s glossy four-color catalogs were being distributed in production runs of about 100,000 each. In addition, the company was producing other mailings sent to prospective customers several times a year. Its interactive e-commerce site was introduced in February 2000.

Holt’s Cigar was maintaining long-term relationships with more than 50 suppliers. Fuente Cigar supplied about 58 percent of all premium cigars purchased, on a dollar basis, by Holt’s during fiscal 2000. General Cigar Co. supplied another 7 percent in the form of Castaños produced by Villazon & Co., Inc.

Principal Subsidiaries

Ashton Distributors, Inc.; Ashton Pipe Company, Inc.; Holt’s Cigar Company, Inc.; Holt’s Mail Order, Inc.

Principal Competitors

Altadis; General Cigar Co.; JR Cigar Inc.

Key Dates:

1911:: Holt’s Cigar Co. is founded as a small Philadelphia retail store.
1957:: Albert Levin purchases the business.
1980:: Albert’s son Robert, now CEO, purchases H.A. Tint & Sons, a Philadelphia store for quality cigars.
1986:: Holt’s introduces its first proprietary cigar brand, Ashton.
1995:: The company moves its downtown retail store to Walnut Street.
1997:: Holt’s completes its initial public offering of stock.
2000:: With Holt’s sales stagnant and its stock price lagging, the company is privatized again.