Spirits maker Rémy Cointreau has cut its sales outlook and lowered its profit guidance, as its optimism for the second half of its financial year faded amid worsening trading conditions in the United States and China.
After steep declines in sales in the first half, the French maker of Rémy Martin cognac and Cointreau liquors had been anticipating a rebound in the remainder of the year, led by a sharp increase in U.S. sales starting in the third quarter.
But on Friday, Rémy Cointreau delayed that recovery until its 2024/25 fiscal year, also pointing to a slower-than-expected recovery in China, where a tough economy has dampened demand.
Lower Expectations
It now expects 2023/24 full-year organic sales to fall by 15% to 20%, versus its previous forecast for stable sales.
Cognac sales, which makes up a large portion of group revenues, fell 30.1% in the first half, with Rémy Cointreau citing a steep decline in North America where it said it faced a "fiercely promotional" environment and a rise in interest rates that had cut distributors' financing capacity.
Its full-year current operating margin would see a 'contained decrease', the company said, compared with its previous expectations for a stable margin. It would achieve this via the deployment of a 'major cost cutting plan".
"Rémy Cointreau is determined to protect its 2023-24 profitability through tight cost controls,' it said.
First-Half Sales
Sales for the first half of its fiscal year came in at €636.7 million, marking a like-for-like fall of 22.2%, below analyst expectations for a 21.2% decline.
This reflected a normalisation of consumption in the United States, where the group is reducing inventories, while in China it saw solid growth during that mid-Autumn festival despite a slower-than-expected post-COVID recovery in demand.
Rémy Cointreau's fiscal year starts on April 1 and ends on March 31.
Analyst Comment
Commenting on Rémy Cointreau's performance, Barclays Equity Research said, "The majority of the problems here are in the USA - this is where the market is declining and the destocking is taking place. According to Rémy's data the past 3 months were worse than the past 6 months, and the past 3 months were also below 2019 levels. So with no improvement, Remy's value depletions have lost all the improvement from the pandemic related gains.
"Rémy has also stated that consumer confidence in China is soft, although Q2 did see an improvement in sales vs last year, despite the high comps. [...] We continue to have concerns about China where the real estate market will likely weigh on consumer confidence, and the long term the demographic situation is very challenging.
"Without seeing a material improvement in the USA, it is becoming very difficult to see upside in the Rémy share price."
Additional reporting by ESM
