Rémy Cointreau has reported a steeper-than-expected first quarter sales decline as its problems in the US spread to its liqueurs and spirits division and its Asian operations slipped.
The maker of Rémy Martin cognac and Cointreau liqueur reported a 15.6% decline in organic sales during the quarter, compared to the 13.6% drop anticipated by analysts. The company left its full-year guidance unchanged.
Rémy had already warned that its first half was likely to be tough amid ongoing problems in the United States and the slowing economy in China – its two key cognac markets. Cognac make up around 70% of Rémy's sales.
However, the cognac division's 12.2% organic sales decline was well ahead of analyst expectations, but its liqueurs and spirits division saw a 20.4% organic sales fall, more than double that forecast by analysts.
Challenges
All spirits makers are experiencing a sharp slowdown in sales after a post-pandemic boom, when cash-flush consumers splashed out on pricey liquor and producers raised prices.
But Rémy has endured deeper problems in the United States, where demand for its cognac has slowed, retailers and wholesalers have been cutting back on its stock and competitors are offering aggressive promotions.
These trends continued to take a 'heavy toll' on its cognac business, Rémy said, but also hit the liqueurs and spirits division harder than they had before. The unit houses brands such as Cointreau, The Botanist gin and Bruichladdich whisky.
Rémy said the unit was also hurt by a 'sharp fall' in sales in Europe amid high inflation and more promotions from rivals, a downturn in demand in Southeast Asia and whisky destocking in China.
At the group level, Rémy described the Chinese market as 'sluggish'. It had enjoyed a surprise uptick in cognac sales there in the fourth quarter of last year, but executives warned that might not last.
An analyst note from Barclay's stated, 'Rémy’s Q1 is a miss. The company is waiting for the spark, but we see far more headwinds in the forms of a weaker Chinese consumer and a heavily promotional US cognac environment.'
China Brandy Probe Timeframe
Beijing has given no official timeframe for a decision in its anti-dumping investigation on European Union brandy, Rémy Cointreau's chief financial officer said, after top cognac makers attended a hearing on the issue last week.
China announced a probe into whether EU brandy makers were selling their product in China at below-market rates in January, weighing on sentiment for cognac producers like Rémy as investors fear it could result in the imposition of tariffs.
Representatives of the industry, which say the probe is linked to a broader trade row rather than the liquor market, attended a hearing in Beijing last week - their first chance to defend themselves against the allegations in person.
Rémy's CFO Luca Marotta told analysts on a first-quarter sales call that China's Commerce Ministry had not given any official communication regarding the timing of its decision after the hearing.
The company makes some 70% of its sales from cognac, with China one of its largest markets for the brandy, and its most profitable.
Staying Calm And Continuing As Normal
Asked whether the group was taking any steps to mitigate the impact of potential tariffs, such as shipping product to China ahead of time, Marotta said it was staying calm and continuing as normal.
"So far the investigation didn't affect consumer tastes or the essence of the business, so we are not changing the operation to try and anticipate, or offset, in an extraordinary way, the... impact," he said.
He added that it was also not possible to say whether Rémy would look to pass the costs of higher tariffs onto consumers, only that the company was prepared to react if they were imposed.
The French cognac industry makes up almost all of China's EU brandy imports. Other affected players include Pernod Ricard and LVMH.
News by Reuters, additional reporting by ESM.
