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How LVMH and Rémy Cointreau results reveal the continuing problem for Cognac

26 January 2024 By Ron Emler

Last year was a record one for luxury goods group Moët Hennessy Louis Vuitton (LVMH) although the pace of sales growth slowed from 2022, but Rémy Cointreau results show the continuing issue for Cognac. Ron Emler investigates.

Chairman and CEO Bernard Arnault said the company grew its sales by 9% to €86.2 billion in 2023, which represented organic growth of 13% and said he was looking forward to 2024 “with confidence”.

Finance director Jean-Jacques Guiony, said that an annual growth rate of about 10% was the group’s ongoing target.

Although Arnault made no mention of it, there was, however, a black mark on the overall performance: Cognac.

Organic sales in LVMH’s Moet Hennessy wines and spirits division fell by 4% (7% in cash terms) in the year and profits from recurring operations were down 2%.

Cognac

While the Champagne empire posted unquantified “growth”, Hennessy Cognac had a bad year.

America and China are the two biggest export markets for Cognac and both were badly hit by consumer resistance to inflation and changing tastes.

Shipments to China for the new year which begins in two weeks’ time, have been reduced to regulate existing stocks while the large inventory overhang in the US is a prime cause of Remy Cointreau’s present travails.

But Remy Cointreau had some better news for investors in its third quarter sales figures.

After making a none too oblique reference to Hennessy (the “intense promotional environment”) and its attempts to rectify overstocking in America, Remy Cointreau said its fall in third quarter sales was smaller-than-expected.

Overstocking

The abnormal level of overstocking forced Remy Cointreau in October to issue a warning that its annual sales in the year to March would be between 15% to 20%.

In now expects them to be at the lower end of that bracket and the shares jumped by 15% on the announcement.

That said, it reiterated that it did not expect sales to return to growth in the U.S. before financial year 2024/25, and that growth in China would continue to be tempered by a slower than expected economic recovery there.

Remy Cointreau’s organic sales dropped by 23.5% in the third quarter. Overall sales of Cognac, which makes up two thirds of Remy’s revenue, fell by 33.9% in the quarter to €197.1 million against the €194.0 million predicted by analysts.

The way ahead for Cognac is clouded by the threat of potential tariff sanctions by China as part of trade spat with the EU but Remy Cointreau is determined to press ahead with premiumisation.

With the sales results it reiterated both its financial and extra-financial targets for 2029-30, and its aim to become “the global leader in exceptional spirits”.

But what of Moet Hennessy?

Arnault told shareholders thar 2024 “provides a new opportunity to reinforce our global leadership position in luxury goods.”

Yet despite his iron grip on the company, to which he is proposing to promote two more of his children to the board, some commentators speculate whether the separate parts of

LVMH might be worth more individually than they are in a conglomerate.

Pernod Ricard has taken a cold look at the returns from its Antipodean wine business and is looking to sell.

Nobody believes Arnault would sell part of his empire, but might he look at the capital invested in Cognac and conclude that it would be better employed in luggage, haute couture, watches, jewellery or perfumery.

He says he “is going nowhere”, having extended is term in office until his 80th birthday in four years’ time, but he is known for his ruthlessness.

Unlikely, but could there come a time when Moet Hennessy becomes a standalone drinks company?

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