Shares in Remy Cointreau plunged 11% on Friday after it cut its sales outlook and lowered its profit guidance, with optimism around a better second half fading amid worsening trading conditions in the United States and China.
After steep declines in sales in the first half, the maker of Remy Martin cognac and Cointreau liqueurs had been anticipating a rebound in the remainder of the year, led by a sharp increase in US sales starting in the third quarter.
But on Friday Remy delayed that recovery until its next financial year, pointing to a 'fiercely promotional' environment and the impact of interest rate increases on partners' financing in the United States. China's recovery is also set to be slower-than-expected, as a tough economy dampens demand.
It now expects 2023/24 full-year organic sales to fall by 15-20%, while its current operating margin would see a 'contained decrease', the company said. Both had been previously forecast as stable.
This year would prove a 'harsh' transition period for the company, chief financial officer Luca Marotta told analysts.
No Price War
"It's harsh, it hurts, we are not happy," he said, adding however Remy's strategy was solid, and it was better equipped to weather difficult times than in the past.
Marotta said Remy would not engage in a price war with competitors, and that it would instead preserve profitability via a cost cutting plan aimed at saving €100 million.
Its shares fell 11%, but recovered some ground to stand 10.4% lower at 0857 GMT.
Cognac Sales Drop
Sales of cognac, which make up a large portion of Remy's revenue, were down 30.1% in the first half largely due to the difficulties in the United States.
Other spirits makers have also suffered in recent months: champagne sales slowed at LVMH; Pernod Ricard grappled with US inventory changes and a tough environment in China; and Campari was hit by both US and China weakness and poor weather in Europe.
However, Pernod and Campari both expected an improved performance in the next quarter, spanning the all-important holiday season, where Remy expected ongoing difficulty at least in the United States.
Laurence Whyatt, head of European beverages research at Barclays, said Remy's guidance was now "materially below" expectations.
"Remy has this double whammy coming from its two major markets," he continued, adding other companies with less reliance on cognac and a broader geographic footprint would not be as severely impacted.
Remy's first-half sales came in at €636.7 million, a 22.2% decline, slightly below analyst expectations.