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R\u00e9my Cointreau is not celebrating<\/strong><\/b>…<\/p>\n <\/p>\n The wine and spirits group<\/strong><\/b> has just reported lower-than-expected sales for the second quarter of the 2024-25 financial year,<\/strong><\/b> which ended in June. Its organic decline reached 16.1%<\/strong><\/b>, whereas analysts were hoping for a 15.4% reduction.<\/p>\n <\/p>\n In the first half of<\/strong><\/b> 2024-2025, R\u00e9my Cointreau’s sales thus fell by 15.9% organically<\/strong><\/b> (-16.2% reported) to 533.7 million euros. This counter-performance includes a negative currency effect of 0.3%<\/strong><\/b>, mainly due to the evolution of the Chinese renminbi.<\/p>\n <\/p>\n As a result, the Group has revised downwards its performance for the 2024-25 financial year<\/strong><\/b>. It now anticipates a double-digit decline in annual organic sales.<\/strong><\/b><\/p>\n <\/p>\n It has to be said that its cognac division (Remy Martin and Louis XIII)<\/strong><\/b>, which accounts for 65% of sales<\/strong><\/b> (compared with 33% for liqueurs and spirits (Cointreau, Metax, St-R\u00e9my, Westland, etc.) and 2% for partner brands), generates 87% of operating profit<\/strong><\/b> (i.e. twice the share of liqueurs and spirits), and is exposed to very strong headwinds.<\/p>\n\n <\/p>\n In the first half of the year, the Cognac division fell by 17.5% in organic terms<\/strong><\/b>, while the decline in liqueurs & spirits<\/strong><\/b>, also in double figures (-12%<\/strong><\/b>), was more moderate.<\/p>\n <\/p>\n \u201cIn an overall sluggish spirits market, Cognac is among the most difficult categories, especially after the recent increase in import taxes in China<\/strong><\/b>,\u201d the investment bank Stifel<\/strong><\/b> pointed out to the financial press.<\/p>\n <\/p>\n However, R\u00e9my Cointreau’s half-year results have not yet been affected by the temporary increase in customs tariffs on European brandies in the Middle Kingdom,<\/strong><\/b> implemented only at the beginning of October<\/strong><\/b> in response to the European Union’s increase in customs duties on Chinese electric vehicles.<\/p>\n <\/p>\n In China<\/strong><\/b>, the Group recorded only \u201ca limited decline in Cognac sales<\/strong><\/b> in the second quarter, despite a high basis for comparison (three consecutive years of significant growth) and a complex market environment\u201d.<\/p>\n <\/p>\n On the other hand, the division’s sales in South-East Asia<\/strong><\/b> \u201c fell sharply<\/strong><\/b>, penalized by intense promotional activity in the market\u201d.<\/p>\n <\/p>\n In the Americas, and more particularly in the United States,<\/strong><\/b> Cognac sales remained \u201cpenalized by continued inventory adjustments,<\/strong><\/b> in a market affected by the normalization of consumption<\/strong><\/b>\u201d and also \u201cconfronted with strong promotional activity<\/strong><\/b>\u201d. This strong promotional pressure on Cognac, also observed in Europe, also weighed onthe EMEA region<\/strong><\/b> in the second quarter,<\/strong><\/b> also penalized by destocking effects in Africa.<\/p>\n <\/p>\n The Liqueurs & Spirits division, meanwhile, saw organic sales fall by only -4.9%<\/strong><\/b> in the second quarter<\/strong><\/b>, representing \u201ca sequential improvement on the first quarter\u201d.<\/p>\n <\/p>\n By contrast, partner brands fell by 25.4% organically<\/strong><\/b> in the second quarter.<\/p>\n <\/p>\n Overall, in the first half<\/strong><\/b>, the Group posted a 22.8% organic decline in the Americas.<\/strong><\/b><\/p>\n <\/p>\n In the APAC<\/strong><\/b> region, the decline was 8%.<\/strong><\/b> The Group cites \u201ca high basis of comparison, a more difficult market in China and a low level of consumption in South-East Asia\u201d.<\/p>\n <\/p>\n Finally, sales in the EMEA region fell by 18.8% in organic terms<\/strong><\/b>, \u201creflecting continuing contrasts in consumption\u201d.<\/p>\n <\/p>\n These changing circumstances have led R\u00e9my-Cointreau to be more pessimistic<\/strong><\/b> than in the past.<\/p>\n <\/p>\n Whereas previously he had hoped for a \u201cgradual recovery over the course of the year\u201d, he now expects \u201canother year of double-digit organic decline<\/strong><\/b>\u201d.<\/p>\n <\/p>\n As for operating margin before non-recurring<\/strong><\/b> items, he no longer believes he can protect his profitability, and now expects an \u201corganic deterioration, partially offset by a cost-cutting plan of over 50 million euros\u201d.<\/strong><\/b><\/p>\n <\/p>\n In geographical terms, it does not expect \u201ca return to growth in the Americas before the fourth quarter of 2024-25<\/strong><\/b>, at the earliest\u201d, and anticipates, in the second half of the year, a \u201csequential deterioration in sales\u201d in the APAC zone and \u201csubdued consumption\u201d in the EMEA zone.<\/strong><\/b><\/p>\n <\/p>\n In the Middle Kingdom, the Group has taken note of the provisional decision by Mofcom (the Chinese Ministry of Commerce) to impose \u201cadditional customs duties of up to 38.1% on imports of cognac into China,<\/strong><\/b> from October 11, 2024\u201d. And it announced that \u201cif these provisional duties were confirmed\u201d, it would \u201cactivate its plan to mitigate their effects from 2025-26\u201d<\/strong><\/b>.<\/p>\n <\/p>\n \u201cTheimpact of these new tariffs on the financial results for the current year<\/strong><\/b>, which ends on March 31, is expected to be marginal<\/strong><\/b>,\u201d said Luca Marotta, R\u00e9my Cointreau’s CFO<\/strong><\/b>, however.<\/strong><\/b><\/p>\n <\/p>\n More generally, the Group describes fiscal 2024-25<\/strong><\/b> as \u201ca transition year<\/strong><\/b> \u2018 capable of \u2019notably 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<\/strong><\/b> and a gradual organic improvement in operating margin on ordinary activities\u201d.<\/p>\n <\/p>\n Over the long term, the Group remains confident andconfirms its financial targets for 2029-30<\/strong><\/b>: a gross margin of 72% and a recurring operating margin of 30%.<\/strong><\/b>…(based on 2019-20 exchange rates and scope of consolidation).<\/p>\n <\/p>\n Paradoxically, the announcements from the listed group, but still controlled by the founding families<\/strong><\/b> (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<\/strong><\/b>, in the wake of the publication of its half-year results.<\/p>\n <\/p>\nHeadwinds for Cognac<\/h2>\n
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China little affected in the second quarter<\/h2>\n
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Free fall in the Americas<\/h2>\n
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Downward revision<\/h2>\n
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Higher prices in China<\/h2>\n
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