Shares in Rémy Cointreau fell 11 per cent after the French spirits maker predicted its sales would contract by a fifth this year as US consumers shun cognac.
The Paris-based company said revenues in the Americas collapsed 50 per cent in the first half of the year as consumers stopped purchases and LVMH ramped up promotions on its Hennessy cognac brand. Revenues from the Rémy Cointreau’s cognac division plunged 30 per cent, 85 per cent of which was driven by falling US sales.
“In the United States, market conditions have deteriorated on the back of a fiercely promotional environment and a rise in interest rates that has cut distributor’s financing capacity,” the company said on Friday.
Rémy Cointreau said it now expected organic sales to decline between 15 and 20 per cent this year, pushing the rebound previously expected in the third quarter into next year.
Bernstein analysts called the cut to guidance “a machete not a scalpel”.
Shares in the company fell to a three-year low of €104 a share to a market value of €5.6bn, from highs of €12bn at the end of 2021.
In the US, Rémy’s key competitor in the cognac market, LVMH, has aggressively promoted its Hennessy brand to attract US consumers hit by the cost of living crisis. Bernstein analyst Trevor Stirling said the promotional actions by LVMH were uncharacteristic of the French luxury giant.
“Usually they would hold the prices and eat the pain,” he said. “They don’t want to bring prices down so they are doing temporary promotions. It’s most unlike the philosophy of the group.”
Rémy is also reluctant to lower prices, saying it would “maintain a strict and uncompromising pricing policy”, and swallow the sales hit.
Wine and spirits have been the weakest division for LVMH so far this year, with sales declining 7 per cent on an organic basis in the first nine months of 2023 as US demand for cognac fell.
Cognac sales boomed during the pandemic as consumers drank through lockdown and the reopening, spurred by stimulus checks.
Half of all cognac in the US is drunk by African Americans, who have been disproportionately affected by the cost of living crisis now that the stimulus checks have run out, according to Bernstein.
“It tells you about the haves and have nots in the US,” Stirling said.
Rémy Cointreau and LVMH are not the only drinks producers to hit a rough patch, particularly in the US market.
Shares in Aperol maker Campari plunged on Thursday after the group missed sales and profit expectations, which the company blamed on poor weather in Europe and normalising post-pandemic demand in the US.
French drinks maker Pernod Ricard also reported declines in sales in the US and China in its most recent quarter as sales for Martell cognac took a hit in China, while demand for Jameson whiskey and Absolut vodka fell in the US.
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