July 18 (Bloomberg) -- Remy Cointreau SA, the French cognac maker that’s suffering from China’s crackdown on lavish spending, reported a drop in first-quarter sales as shipments of the spirit fell more than analysts estimated.
Sales on an organic basis declined 5.7 percent in the three months through June, more than the median 5.2 percent decline estimated by eight analysts surveyed by Bloomberg News. Revenue at the Remy Martin cognac unit fell 15 percent, the Paris-based company said today in a statement. The median estimate was for an 11 percent drop.
Remy’s first-quarter sales improved compared with last year’s 11 percent decline, which was led by a 21 percent plunge in cognac. Remy, which gets the majority of its revenue from that spirit, reiterated that it expects an increase in sales and operating profit on an organic basis this fiscal year, after a 41 percent decline in earnings last year on the same basis.
Remy’s shares rose 1.5 percent to 63.54 euros at 9:21 a.m. Paris time. The company’s shares have slid 22 percent in the past 12 months, compared with a 1.5 percent decline for Paris-based Pernod Ricard SA.
“On bare facts, Remy’s share price reaction to today’s numbers should be to remain unchanged,” Jonathan Fyfe, an analyst at Mirabaud Securities in London, wrote today. “However, given the trials of the past year, the signs of sequential improvement means we would be unsurprised to see shares head upwards.”
The Chinese clampdown on extravagant spending on banquets and gifts by government officials has particularly weighed on premium cognac. Remy has said it will continue to focus on the “upmarket positioning” of its brands.
Other producers such as Pernod are creating less expensive variants to adjust, according to Pernod’s Chief Financial Officer Gilles Bogaert. Sales growth in China should resume next year, he said in June.
“This performance confirms the sequential improvement noted since the previous quarter,” Remy said today. Cognac shipments suffered as liquor retailers continued to reduce inventories in Asia and due to a “still challenging macroeconomic and competitive environment, particularly in western Europe.”
Sales rose 11 percent at Remy’s liqueurs and spirits unit, led by brands including Cointreau and Bruichladdich.
On June 10, Remy appointed a new Chief Executive Officer, Valerie Chapoulaud-Floquet, who formerly headed the Louis Vuitton brand’s Americas business for LVMH Moet Hennessy Louis Vuitton SA. Former CEO Frederic Pflanz resigned for personal reasons less than three months in the role. The company has also replaced the head of its cognac unit this year.
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