Analysis - China's Cognac slowdown hits Rémy Cointreau's margins
Remy's Louis XIII has been hard hit
A slowdown at the top end of China's Cognac market has knocked Rémy Cointreau's margins in the second half of the year despite greater profits, an analyst has said.
The French spirits firm today (11 June) posted a 25% full-year operating profits boost in its Rémy Martin range, compared to a 23% jump last year. However, Bernstein analyst, Trevor Stirling, said that while in fiscal H1 operating margins grew by 2.1 percentage points, in H2 margins fell back by 1.2 percentage points.
“That's largely due to the changing mix in China, because we know that the top end of the Chinese market has been hardest hit by the slowdown and almost certainly that has put a bit of squeeze on margins in the second half on China,” Stirling told just-drinks.
In a note earlier, Stirling said that the slowdown in Cognac demand “has been greatest at the Extra level where Rémy Martin's Louis XIII dominates”.
Margin pressure was more keenly felt in Rémy's Liqueurs & Spirits category because of cost concerns over its St Rémy brand, Stirling said.
The French brandy, sold mainly in the US at low price points, was hit this year by the EU's scrapping of distribution subsidies on distillation of wine stocks. “It has hit their COGS (cost of goods sold) quite significantly,” Stirling said.
Overall, Stirling said Rémy's results were mostly in line with expectations. “A little bit light,” he added. “Cost inflation for St Rémy took us a little bit by surprise, but it is small in overall group numbers.”
Rémy Cointreau punches above its weight in spirits, having established itself as a major global player in cognac despite its relatively small size compared to Pernod Ricard and LVMH. China has been it...
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