China Gives Remy Cointreau Fresh Air

Sources of the French group, which owns coñaq Remy Martin and liqueurs such as Mount Gay, Saint Remy, Metaxa, Cointreau, Passoa, among other brands, said that sales in the three months ended Dec. 31 rose 11 percent to € 300 million  compared with the same period last year. The company seeks to overcome the barrier of 1 billion euros in total sales for fiscal year 2015. Keep in mind  that since 2013, when there was a record high of 1.15 billion the company has been mentioned recently surpassing one billion threshold .

Since 20% operating margin with which the company had in 2013 (when, on the other hand, share quotation was  near 100 euros), Remy Cointreau has been reduced that margin to 15% in 2014. This improvement prospects are good for the following quarters, trying to reach the 18 % level.

We note that both debt ratios, and liquidity of the company is in line with the companies in its sector, but we see too much reliance on the brand Remy Martin that while traditionally accounted for half of the group’s sales, according to latest sales figures available, now accounts for nearly 60% of the total.

Such sales of cognac Remy Martin, his flagship, grew 11 percent in the fiscal third quarter produced a slight growth in China following several quarters of decline in that country while demand in the US it remained strong, with growth of over 15%. Central Europe also grew at a rate of 10%, Western Europe showed stagnating sales while Russia is expected to end fiscal year 2015 with double-digit decline. The fall of the Russian tourism has also affected sales of Remy Cointreau at duty free shops.

The organic growth of the company, which excludes currency effects was 3.2 percent. Organic growth of Remy Martin cognac was 6.4 percent – the first positive figure in the fiscal year. Both figures are in line with company expectations, were wellcome by the markets rising the share price a 5% in one day, to be above the 66 euros at the beginning of February.

The stabilization of sales of cognac in China are a positive sign for a luxury industry is grappling with headwinds, including slowing growth in emerging markets, terrorism that threatens the flow of travelers and great expense volatility ongoing currency.

The strategy of keeping high prices on its highest range has worked very well for Remy Coentrau, while other producers , such as Martell coñaq rival Pernod Ricard, have launched discounts in the Chinese market cut prices to correct the decline in sales, Remy has maintained its focus on high-priced high-end segment.

The demand for alcoholic beverages is in China, where consumers are upper-middle class consumer drivers – everything from sportswear, cosmetics and luxury spirits. Its consumption is ending a drought caused four years ago by a government crackdown on corruption, with measures that seek to reduce gifts and banquets officials.

The travel boom in China has also raised sales of alcoholic beverages in duty free shops. We will have to see how they affect the already noticeable  slowdown in the Chinese economy, both cognac sales in mainland China, such as those in airport shops. Falls Chinese stocks since the beginning of year do not seem to anticipate a good 2016.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.