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Challenges continue for Rémy Cointreau
French drinks group Rémy Cointreau’s woes are continuing, especially in the United States, according to its latest results.
The company was hit by a steeper-than-expected decline in the first quarter of its financial year with its stocking problems in the US market for cognac spreading to its liqueurs and spirits division.
That is in marked contrast to the Moet Hennessy arm of LVMH which reported that demand for its Cognac range has stabilised.
Sales of Remy Martin Cognac and Cointreau liqueur fell by 15.6% in organic terms during the quarter, compared to the 13.6% drop predicted by analysts.
The Cognac division’s sales were 17% lower than in the first quarter of 2019, prior to the onset of the Covid pandemic.
Cognac and Cointreau account for about 70% of the company’s sales.
Encouragingly, however, the group left its full-year guidance unchanged on the basis that its strict financial controls are having a positive effect.
It said that it “continued to exceed milestones in its 10-year development plan” and that it expected the US destocking problems to be resolved during the next financial year.
Overall, it expects a “gradual recovery” later this year.
There shares were unmoved by the results, standing at €70, roughly hald their level at this time last year.
Investors had been warned that the first half of this year would be difficult because of the high stock levels in the US combined with consumer downtrading and a general switch away from cognac.
Added to the sluggish consumer economy in China, where Remy is the cognac market leader, this triggered a 12.2% decline in organic sales, which was better than analysts expected.
Remy said that slowing demand in the US continued to take a “heavy toll” on its cognac business,
Surprisingly, organic sales of liqueurs and other spirits slumped by 20.4%, more than double the decline generally expected.
Remy said the unit was 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, Remy described the Chinese market as “sluggish”. It had enjoyed a surprise uptick in cognac sales there in the fourth quarter of last year, but warned that might not last.
In addition, there is a threat from Beijing of penalty tariffs hanging over Cognac.
This is in potential retaliation for the EU’s actions against Chinese imports of electric vehicles and components.
Remy’s finance director, Luca Marotta, said that following a meeting last week with distillers, China’s Commerce Ministry had yet to give any official indication of when its review of the market would be concluded.
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