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Cognac is back - is Remy Cointreau ready? - Analysis

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In a fiscal-2017 trading update yesterday, Remy Cointreau praised the continued strong performance of its Remy Martin Cognac division - naming Asia-Pacific and the US as key growth drivers. 

Cognac helped drive growth for Remy Cointreau in fiscal-2017

Cognac helped drive growth for Remy Cointreau in fiscal-2017

The sentiments echoed those made earlier this month by Moet Hennessy. In its first quarter results, the Hennessy Cognac owner highlighted continued momentum in the US as well as improved sales in China. Moet Hennessy even asserted that conditions were so much improved that supply could be under pressure. 

"Hennessy Cognac saw volumes increase significantly which could impact the availability of stocks  for the rest of the year," the firm said. 

However, while stock may be squeezed at Moet Hennessy, the same problem does not appear likely at Remy.

"Good news is Rémy Cointreau said it has a satisfactory level of eaux de vie inventories thanks to its strategy which prioritises price/mix over volumes and its sourcing in Grande Champagne and Petite Champagne which is very specific versus its competitors," said Bryan, Garnier & Co analyst Virginie Roumage in a note to clients.

Digging in to Remy's predisposition for all things premium and up, Roumage said the company's Asia-Pacific unit gained market share in Club, QSS and QSS+ while it lost share in VSOP. She said the performance "is explained by [Remy's] upgrading strategy". 

It is hard to believe that over the past two years, the headlines around both Remy and Moet Hennessy's Cognac businesses were peppered with words and phrases such as 'stagnate' and 'hit the bottom'

Incidentally, it is almost two years since Remy Cointreau's CEO, Valérie Chapoulaud-Floquet, set out plans for her company to become a leader in high-end spirits. 

Analysts at Societe Generale said in a note that they "continue to believe" in Chapoulaud-Floquet's plan.

"Our thesis on Remy has been that fast growth in high-end Cognac should drive significant gross margin improvements," said SocGen analyst Laurence Whyatt. "This remains the case, with Louis XIII (at US$3,000 a bottle) being the fastest-growing product in China and America for Remy." 

Meanwhile, Bernstein's Trevor Stirling called Remy's plan "the right strategy", though he also pointed out that it chimes well with improved conditions around Cognac consumption.

"Yesterday's F17 sales brought clear evidence that Cognac top-line growth has accelerated," Stirling said, "albeit strongly boosted by favourable industry trends in the group's two core markets of the US and China."

With the right strategy in place and the right market conditions, it appears the stars have realigned for Cognac. How long, then, before the boom hits and we are writing about shortages and price increases? 

Remy Cointreau FY fiscal-2017 sales performance by brand - results data


Sectors: Company results, Spirits

Companies: Remy Cointreau

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