Retail offers mixed blessings for Constellation

An improved retail performance in the US offered an important boost to slightly disappointing results from Constellation Brands, the world’s biggest winemaker, as the group released its fiscal first quarter results last week.

However, the company’s struggle to compete in the wine industry’s tough trading environment saw a higher promotional spend being primarily responsible for a $15 million decrease in its North American wine segment.

Despite the fact that sales fell to $788m from $792m a year ago, Rob Sands, president and CEO of Constellation Brands, described the performance as “in line with our expectations.”

He added: “We are beginning to see benefits from our focus on profitable organic growth. Our US distributor initiative gained traction in the first quarter as we experienced improved results at retail.”

Sands also pointed to a boost from increased brand investments, promotional activities and the launch of several new products, including the Woodbridge by Robert Mondavi brut sparkling, as well as Blufeld Riesling, the first German wine to be released by the firm in the US; Blackbox Malbec and the Arbor Mist White Pear Pinot Grigio.

Constellation’s decision to shed its UK cider and value spirits businesses was largely blamed for a consolidated net sales decrease of 1%. The result was improved slightly by favourable currency fluctuations.

The company also received a welcome boost from a lower quarterly tax rate of 24%, compared with 39% in the first quarter of last year.

A 28% rise in organic net sales for Constellation’s spirits business was led by a 40% gain for Svedka vodka following a major advertising campaign for the brand.

Looking to the future, Sands painted a cautious picture, saying: “While macroeconomic and competitive challenges persist, we are encouraged by improving market trends in our US wine and beer businesses."

Gabriel Savage, 05.07.2010