Remy Cointreau, a prominent player in the spirits industry, saw its shares tumble by 11% on Friday, reflecting a sharp decrease in optimism for a quick U.S. recovery and deteriorating economic conditions in both the United States and China.
The maker of esteemed brands such as Remy Martin cognac and Cointreau liquors had previously projected a strong rebound in sales for the second half of the year, particularly banking on a robust resurgence in U.S. sales during the third quarter. However, Remy Cointreau has now postponed this anticipated recovery until the 2024/25 fiscal year, citing slower-than-expected progress in China, where a challenging economic climate has impacted consumer demand.
The company has adjusted its outlook, now expecting organic sales for the full 2023/24 fiscal year to drop by 15-20%, a significant departure from its earlier forecast of stable sales.
Cognac sales, a substantial contributor to the group’s revenues, experienced a formidable decline of 30.1% during the first half. Remy Cointreau attributed this to a significant drop in North American sales, driven by a highly competitive market environment and increased interest rates that diminished distributors’ financing capabilities.
Regarding current operating margin for the full year, Remy Cointreau now anticipates a “contained decrease,” in contrast to its prior projection of a stable margin. The company aims to achieve this through the implementation of a “major cost-cutting plan.”
In a statement, Remy Cointreau emphasized its commitment to safeguarding its profitability in the 2023-24 fiscal year by enforcing rigorous cost controls.
As a result of this announcement, Remy’s shares plummeted by 11% at the market opening.
Laurence Whyatt, the Head of European Beverages Research at Barclays, remarked that Remy Cointreau’s revised guidance now falls “materially below” expectations. He also expressed concern about the company’s inventory levels in the United States, which remain considerably high despite efforts to reduce them. Currently, the company holds around five months’ worth of stock, while sales continue to decline. This stands in contrast to the optimal inventory levels of two to three months.
