Pernod has seen its Cognac sales struggle in recent years

Pernod has seen its Cognac sales struggle in recent years

Gong xi fa cai, as the Chinese say.

The saying is the equivalent of "happy New Year" and it is ubiquitous in China at this time of year, partly because of the earworm of a song that is played in every department store and on all television shows. All together, now: Gong xi, gong xi, gong xi ni...

Literally, however, gong xi fa cai means "I hope you get richer", a particularly apt sentiment at Chinese New Year for alcohol companies, many of whom depend on the sales bounce the festival adds to the top line.

This year, though, that bounce came early, as the lunar new year fell on 8 February compared to 19 February in 2015, and Chinese consumers stocked up for the biggest celebration in the country's calendar. In Pernod Ricard's first-half results, released last week, this meant China sales were down just 2% for the six months, compared to a 16% decrease for the same period last year, according to Bernstein figures. A cause for new year cheer, then? 

Perhaps not. Without the effect of the early New Year, Pernod's China sales would have dropped by 8%, Bernstein says, and the company can no longer count on a consumption boost in Q3, as it did last year. Even though Pernod's China sales have been falling for some time now - due to the introduction of extravagance measures and the collapse of the gifting and banqueting market - sequentially improving trends may come to a halt in the next quarter.

That would be in sharp contrast to rival Cognac maker Remy Cointreau's performance in China. Last month, the company posted a flat Q3 in China, leading analysts to suggest sales had finally bottomed out and that a rebound is on the way. Moet Hennessey also posted a bounceback in China sales earlier this month.

However, late last week, analysts took a more cautious view of Pernod's Chinese performance.

Trevor Stirling at Bernstein said he is waiting for the third-quarter results for a "clearer view" of the Chinese New Year sell-through, although he notes that Pernod claims to have gained Cognac share.

Nomura's Ian Shackleton writes that Pernod has not changed its message on China and that it still expects fiscal full-year sales to come in in-line with fiscal-2015 and the first quarter of this fiscal year (ie, down by 4% to 5%).

That Pernod is sticking to its script in the face of more positive tunes played by its competitors does not necessarily mean that last month's forecasts of an end to China's Cognac struggles were premature. After all, none of the international spirits producers could have imagined the slump would last this long when the anti-extravagance measures were first announced three years ago. Caution over China, therefore, is now a default setting.

However, it is a helpful sign not to get carried away by a quarter or two of improved performances. While analysts have previously warned that the golden days of Cognac in China will never return, even getting back to positive sales growth in the country will be a long, hard slog for the multinational spirits players.