Remy Sees Continued China Cognac Pressure in Second Quarter

Remy Cointreau SA (RCO) said sales of its Remy Martin cognac in China will continue to be hurt by retailers reducing inventory after first-quarter revenue slid.

The distiller will “remain adversely affected” in the quarter through Sept. 30 “due to measures focusing on conspicuous behavior” in China, Paris-based Remy said today.

China is a key market for the company, being its biggest in Asia, where it generates almost 40 percent of sales. Last year, cognac represented 60 percent of Remy’s revenue. The maker of Mount Gay rum said in June that it would slow exports to China to manage the amount of cognac held by retailers.

Investors may be disappointed by the company’s comments on destocking in China, analysts at Natixis wrote today.

Remy shares slid as much as 2.6 percent in Paris and were down 0.9 percent at 80.90 euros at 9:56 a.m.

Organic sales, which exclude acquisitions, disposals and currency shifts, fell 2.3 percent in the first quarter ended June 30, the company said today. A 13 percent decline in its main-brand cognac sales offset 13 percent growth for other spirits. The median estimate of nine analysts was for cognac sales to decline 5 percent.

Cognac exporters, which include competitor Pernod-Ricard SA (RI), have experienced slowing sales in China after the election of President Xi Jinping amid a crackdown on extravagant spending by officials on gifts and feasts.

Remy, which also makes brands including Cointreau and Metaxa, said today it’s still confident in the medium- and long-term potential of Asian markets.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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