There’s no question Rémy Cointreau’s 2023/2024 financial year was a challenging one.
With Cognac accounting for around two-thirds of the French group’s sales, the Rémy Martin brand owner suffered amid the category’s travails in the two largest markets for the spirit – China and the US.
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When Rémy Cointreau reported its third-quarter (and nine-month) sales in January, the group’s management cautiously indicated the company was seeing signs its faltering Cognac business was stabilising in both countries, although CFO Luca Marotta said US depletions were, at the time, “still negative”.
Investor and analyst sentiment about Rémy Cointreau going into the company’s fourth-quarter (and full-year) sales, which were announced on Friday (26 April), was somewhat muted.
The consensus among analysts was the business would report a 3.4% decline in fourth-quarter sales but, in the end, it booked a 0.7% dip, a result Rémy Cointreau described as a “strong sequential improvement”. Annual sales were down 19.2% on an organic basis at €1.19bn ($1.27bn).
Fourth-quarter Cognac sales jumped 15%, beating analyst consensus by the same amount, helped by a rebound in China. It was Rémy Cointreau’s lower-margin liqueurs and spirits that weighed on the company’s fourth-quarter sales. That division saw its sales sink 27% organically. The Mount Gay rum and Bruichladdich whisky owner said the business was “hit by negative phasing effects” in the US where it had “deliberately opted to complete most of its shipments in the third quarter”.
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By GlobalDataHowever, there remains some uncertainty about the near-term outlook for the company, principally for two reasons and they both centre on Cognac: it’s too early to call a recovery in China, while depletions in North America remain in the doldrums.
Rémy Cointreau itself remains cautious about the outlook for China.
“We think we are doing more than fine and … better than our peers, but we remain humble,” Marotta said on Friday, according to Reuters.
Meanwhile, in North America, Rémy Cointreau said its Cognac business saw a “continued deterioration in value depletions” with “continued destocking … amplified by negative phasing effects”.
Cognac makers selling in the US have seen demand fall from a boom during the Covid-19 pandemic, leaving retailers holding stocks and distillers struggling to sell through more products.
In Rémy Cointreau’s fourth quarter, the company said its sales were hit “by an adverse environment and an intensely promotional market”.
Analysts covering Rémy Cointreau were positively surprised by the company’s fourth-quarter sales figures but remained a little downbeat looking forward.
“The strong beat in Cognac needs to be tempered as it was mainly driven by phasing effects in China following a very weak 3Q24,” Stifel analyst Cedric Lecasble said. “[The] underlying market still provides limited visibility.
“Underlying trends in China remain soft as consumer confidence and weak macro are hitting demand. Destocking continued in North America with a very strong double-digit decline in value depletions, sequentially deteriorating versus the third quarter.”
Rémy Cointreau is set to publish its full financial results next month. The company has set a forecast for its metric of “current operating profit”. The group predicts its current operating profit margin will have seen a “contained organic decrease” during the year thanks to a cost-cutting plan it set out last year.
At AllianceBernstein, analysts covering Rémy Cointreau said investors are focusing on the shape of a “hoped-for recovery” for the business after a “very tough” 2023/24.
“In China, management were slightly less bearish than peers – perhaps buoyed by share gains – but acknowledged low consumer confidence and the threat of tariffs hangs over this business,” they wrote in a note to clients.
Rémy Cointreau’s management, the analysts added, adopted “a very cautious tone” about the US.
“They see a soft industry, destocking that could persist for another six months and extremely intense promotional pressure from several competitors,” the analysts said. “In the words of the CFO, until there are positive value depletions, there will be no recovery, and this still seems some way off, in their view the second half of the 2024/25 financial year – i.e. the fourth quarter of the 2024 calendar year – at the earliest.
“In the long-term, we expect a recovery for Cognac in both China and the USA, even if there likely will be a marginal drift away to other categories in both countries. And we concur with [Rémy Cointreau’s] long-term organic sales growth expectation of high-single-digits.”
Right now, however, that prospect seems a long way off.
