Cointreau´s Change of Strategy Weighs in Results

Cointreau, the French manufacturer of liqueur Cointreau -among others- has a very clear strategy. It believes his place is among sellers of spirits of the highest rank, which exceed $50 per bottle. This decision is based on objective facts: it is a market that grows twice the whole liquor market and it already has a considerable size, more than €15 billion worldwide.

But while focusing on this range of products, the results suffer. On one hand, it is affected by the crisis of demand from China. The spirits are one of the products most affected by the Chinese government measures to reduce spending on luxury goods.

On the other hand, the change of strategy is encouraging a punishment to its sales in the rest of Asia and the US, as their customers have to get used to a higher price of its products and also the disappearance of the cheaper ones. Among other measures, Remy has changed its distribution network in China and has terminated the distribution agreement of champagne.

So, its total sales in the first fiscal quarter (ending June 30) rose nearly 4% to €223 million, below analysts’ estimates. Meanwhile, organic sales (without acquisitions and changes in the balance), fell 9% in the quarter, almost double than expected by analysts.

Cointreau shares up 20% so far this year, bringing its market capitalization over €3 billion. This increase increase the current PE at almost 35 times, trading at premium to competitors like Diageo or Pernod Ricard, justified by the premium segment to which their products are intended.

In any case, its market value is far from the record reached in early 2013, when trading 50% above current levels. The difference between the two points is China; at that time the demand for that country was at its peak, but now that market sentiment towards is that demand can still fall further.

Disclosure: The author 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.