Having just posted a second quarter below expectations, the Rémy Cointreau wine and spirits group is anticipating annual results below previous expectations. The provisional increase in customs tariffs on cognac in China since mid-October will play a role, but other markets, particularly South-East Asia and the United States, are also suffering from promotional pressure.
Rémy Cointreau is not celebrating…
The wine and spirits group has just reported lower-than-expected sales for the second quarter of the 2024-25 financial year, which ended in June. Its organic decline reached 16.1%, whereas analysts were hoping for a 15.4% reduction.
In the first half of 2024-2025, Rémy Cointreau’s sales thus fell by 15.9% organically (-16.2% reported) to 533.7 million euros. This counter-performance includes a negative currency effect of 0.3%, mainly due to the evolution of the Chinese renminbi.
As a result, the Group has revised downwards its performance for the 2024-25 financial year. It now anticipates a double-digit decline in annual organic sales.
Headwinds for Cognac
It has to be said that its cognac division (Remy Martin and Louis XIII), which accounts for 65% of sales (compared with 33% for liqueurs and spirits (Cointreau, Metax, St-Rémy, Westland, etc.) and 2% for partner brands), generates 87% of operating profit (i.e. twice the share of liqueurs and spirits), and is exposed to very strong headwinds.
In the first half of the year, the Cognac division fell by 17.5% in organic terms, while the decline in liqueurs & spirits, also in double figures (-12%), was more moderate.
“In an overall sluggish spirits market, Cognac is among the most difficult categories, especially after the recent increase in import taxes in China,” the investment bank Stifel pointed out to the financial press.
However, Rémy Cointreau’s half-year results have not yet been affected by the temporary increase in customs tariffs on European brandies in the Middle Kingdom, implemented only at the beginning of October in response to the European Union’s increase in customs duties on Chinese electric vehicles.
China little affected in the second quarter
In China, the Group recorded only “a limited decline in Cognac sales in the second quarter, despite a high basis for comparison (three consecutive years of significant growth) and a complex market environment”.
On the other hand, the division’s sales in South-East Asia “ fell sharply, penalized by intense promotional activity in the market”.
In the Americas, and more particularly in the United States, Cognac sales remained “penalized by continued inventory adjustments, in a market affected by the normalization of consumption” and also “confronted with strong promotional activity”. This strong promotional pressure on Cognac, also observed in Europe, also weighed onthe EMEA region in the second quarter, also penalized by destocking effects in Africa.
The Liqueurs & Spirits division, meanwhile, saw organic sales fall by only -4.9% in the second quarter, representing “a sequential improvement on the first quarter”.
By contrast, partner brands fell by 25.4% organically in the second quarter.
Free fall in the Americas
Overall, in the first half, the Group posted a 22.8% organic decline in the Americas.
In the APAC region, the decline was 8%. The Group cites “a high basis of comparison, a more difficult market in China and a low level of consumption in South-East Asia”.
Finally, sales in the EMEA region fell by 18.8% in organic terms, “reflecting continuing contrasts in consumption”.
Downward revision
These changing circumstances have led Rémy-Cointreau to be more pessimistic than in the past.
Whereas previously he had hoped for a “gradual recovery over the course of the year”, he now expects “another year of double-digit organic decline”.
As for operating margin before non-recurring items, he no longer believes he can protect his profitability, and now expects an “organic deterioration, partially offset by a cost-cutting plan of over 50 million euros”.
In geographical terms, it does not expect “a return to growth in the Americas before the fourth quarter of 2024-25, at the earliest”, and anticipates, in the second half of the year, a “sequential deterioration in sales” in the APAC zone and “subdued consumption” in the EMEA zone.
Higher prices in China
In the Middle Kingdom, the Group has taken note of the provisional decision by Mofcom (the Chinese Ministry of Commerce) to impose “additional customs duties of up to 38.1% on imports of cognac into China, from October 11, 2024”. And it announced that “if these provisional duties were confirmed”, it would “activate its plan to mitigate their effects from 2025-26”.
“Theimpact of these new tariffs on the financial results for the current year, which ends on March 31, is expected to be marginal,” said Luca Marotta, Rémy Cointreau’s CFO, however.
More generally, the Group describes fiscal 2024-25 as “a transition year ‘ capable of ’notably finalizing the inventory adjustment in the Americas region and resuming, from 2025-26, the trajectory set for 2029-30, i.e. high single-digit organic growth and a gradual organic improvement in operating margin on ordinary activities”.
Over the long term, the Group remains confident andconfirms its financial targets for 2029-30: a gross margin of 72% and a recurring operating margin of 30%.…(based on 2019-20 exchange rates and scope of consolidation).
Paradoxically, the announcements from the listed group, but still controlled by the founding families (owners of 56.4% of shares and over 70% of voting rights), were well received. Remy Cointreau shares rose by 1.01% on October 25, in the wake of the publication of its half-year results.
Discover our plans Subscribe for 1€ Become an active member of the community of luxury leaders.
To continue reading this article, subscribe or log in to your account
Read also > Beijing surcharges French cognac
Featured Photo: © Louis XIII/Remy Cointreau
