Holt’s Cigar Holdings, Inc.

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Holts Cigar Holdings, Inc.

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

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

Holts 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. Holts 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: 191197

Holts Cigar Co. was founded in 1911 and operated a small store across from Philadelphias City Hall, selling cheap seconds or closeouts to bargain hunters. In 1957 Albert Levin, a Philadelphia manufacturer of womens blouses who had closed this operation, purchased Holts Cigar Co. for about $40,000. The companys 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. Alberts 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 Philadelphias store for quality cigarsespecially Cuban cigars before the embargobut 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 Holts Cigars 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 Holts 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 Holts 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 Holts 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. Holts 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 Holts brand of premium cigars, soldunlike Ashtonexclusively through its retail stores and catalogs.

Holts Cigars 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. Holts own cigar sales reached about 2.8 million in the latter year. The companys 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 Holts 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 Holts 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 basketballs Philadelphia 76ers and hockeys 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 Holts 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 thats 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. Holts 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 Holts Cigar entered a manufacturing agreement with Fuente Cigar Ltd. The Fuente family agreed to sell Holts a minimum of five million premium cigars per year for an initial term of ten years, including the Ashton and Holts brands and others made by Fuente under its trademarks. By 1997 Fuente Cigar employed more than 1,900 workers in four factories and, during Holts fiscal year, supplied the company with 47 percent of the premium cigars it purchased. The Fuente Investment Partnership took a 24 percent stake in Holts, and two members of the Fuente family became directors of Holts.

Public Company: 19972000

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 Holts Cigar took advantage of the boom in its business by issuing its initial public offering, selling 1.75 million sharesabout one-fourth of the totalto the public at $11 each and collecting net proceeds of $17.1 million. Holts 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. Holts net income increased more than fourfold in fiscal 1997, reaching $2.28 million.

Sales of Ashton accounted for about 45 percent of Holts Cigars revenues in fiscal 1998, and it ranked in a survey as one of the top three U.S. best-selling cigar brands. Holts 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. Holts also introduced its first cooperative campaign, sharing the cost of Ashton advertisements with retailers who, in return, were allowed to publicize their stores.

Holts Cigars revenues increased 70 percent in fiscal 1998three-quarters of it in calendar 1997to $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 companys prospectus. But the cigar boom was over by 1998. This was reflected in Holts 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.) Holts 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 Holts Cigar Company continues to be successful .

Holts Cigars 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 companys e-commerce debut. Ashton Virgin Sungrown (VSG) cigarsdubbed robust and potent by the companywere among the cigar markets hottest items. Ashton VSG was said to be the fourth most requested brand in the United States and enabled the Holts wholesale division to outperform the market substantially, according to Levin.

Shares of Holts 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 Holts came public, cigar companies were hot, he said, adding that the reason for the stocks 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.

Holts Cigar in 2000

Premium cigars accounted for 98 percent of Holts 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 Holts 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. Holts 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 Holts Cigars net sales in fiscal 2000. The companys 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. Holts Cigars 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.

Holts 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 Holts 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.; Holts Cigar Company, Inc.; Holts Mail Order, Inc.

Principal Competitors

Altadis; General Cigar Co.; JR Cigar Inc.

Key Dates:

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

Further Reading

Brubaker, Harold, Burnout of Cigar Boom Sends Holts Private Again, Philadelphia Inquirer, November 11, 2000, pp. Dl, D6.

Holts Cigar Holdings Agrees to Be Acquired by HCH Associates, Wall Street Journal, November 13, 2000, p. B19A.

Kasrel, Deni, As Trend Slows, Holts Stokes Its Cigar Brands, Philadelphia Business Journal, September 4, 1998, p. 6.

McCalla, John, Holts Cigar Lights Up Post-Trend Growth Plans, Philadelphia Business Journal, August 18, 2000, p. 7.

Shanken, Marvin R., An Interview with Robert Levin, Cigar Aficionado, Winter 1996.

This Merchants Sales Are Upand Smokin, Philadelphia Inquirer, February 24, 1997, pp. C1, C3.

Robert Halasz

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Holt’s Cigar Holdings, Inc.

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