Remy Cointreau's bellwether Q3 signals blue sky ahead for Cognac - Analysis

Remy Cointreau has started the year with a surprise - the company's Q3 Cognac sales, announced yesterday, surpassed even the most optimistic of expectations.

The impressive 22% bounce for the House of Remy Martin unit in the three months to the end of December was more than double the +9.3% consensus, according to French analysts Bryan, Garnier & Co. It was also more than double the +9.3% jump in Q2. 

The company clearly benefited from an earlier Chinese New Year this year, which saw Chinese consumers stocking up on premium spirits in December rather than in Q4's January. However, underlying trends appear solid, with Remy highlighting continued growth in the US - albeit slower - and an improving environment in Russia to further boost its turnaround in China following the decline of the anti-extravagance years. Additional good news for Remy, whose Cognac house delivers healthy margins off the back of ultra-premium brands such as Remy Martin Louis XIII, is that its increased focus on the high-end is paying off. 

When Valerie Chapoulaud-Floquet took over as Remy CEO in 2015, the former L'Oreal and Louis Vuitton executive said she viewed the company more as a luxury goods producer rather than an alcohol firm. Accordingly, Remy has ditched some of its lower-margin brands (most notable putting Passoa into a JV with Lucas Bols) and increased its presence in high-end whisk(e)y through the purchase of Domaine des Hautes Glaces and Seattle's Westland Distillery. 

Meanwhile, it has invested in its existing premium Cognac lines with the launch of the six-litre Louis XIII Le Mathusalem in July, the L'Odyssée d'un Roi project and the opening of Louis XIII store in Beijing.

According to Societe Generale's Laurence Whyatt, sales of Louis XIII have "substantially improved since the depths of the Chinese anti-corruption drive". US sales are up 12% year-on-year, according to NABCA figures and Remy told Whyatt it was "very pleased and positively surprised" with Louis XIII's China performance.

More importantly, what is good for Remy Cointreau's Cognac sales appears to be good for the rest of the category. This time last year, it was Remy's announcement of a flat Q3 in China that led analysts to suggest sales had finally bottomed out and that a rebound was on the way. 

Soon after, Moët Hennessy posted a bounce-back in China sales, while Pernod Ricard's results also pointed to better days ahead, even though the company refused to accept that any corner had been turned.

That Remy was first to show the uptick is, of course, mainly to do with timing - the company is the first of the big international Cognac suppliers to release its results pre-Chinese New Year. But it is also one of the most exposed to Cognac, with the spirit accounting for 64% of sales, and therefore sensitive to changing winds in the category.

Yesterday's impressive Cognac returns will definitely temper in the company's final quarter of its fiscal year because of the earlier Chinese New Year. However, thanks to Remy, we can expect similarly strong results from its rivals over the next month.

And we have learned that in the long-hard slog back from the disappointments of the anit-extravagance years, Cognac is making firm progress.

---