November 28, 2019 / 7:37 AM / 10 days ago

Departing Remy Cointreau CEO cautious on Hong Kong after weak first half

PARIS (Reuters) - The departing boss of Remy Cointreau (RCOP.PA) said on Thursday she did not foresee any improvement soon in demand for cognac in Hong Kong where falling tourism tied to the political protests dented profit in the first half of the year.

FILE PHOTO: The logo of Remy Cointreau SA is pictured in the Cointreau distillery, where the the orange-flavoured triple sec liqueur is produced, in Saint-Barthelemy-d'Anjou near Angers, France, February 8, 2019. REUTERS/Stephane Mahe/File Photo

Valerie Chapoulaud-Floquet was more confident about prospects in mainland China, where “massively good” demand during the mid-autumn festival boded well for business during the key Chinese New Year festivities in January.

Chapoulaud-Floquet, the architect of Remy Cointreau’s push towards higher-priced spirits to drive profit margins, will be replaced on Dec. 1 by Richemont’s Eric Vallat..

“I think volatility will be more than ever part of the reality. We are facing a quite negative situation in Hong Kong,” she said, highlighting the challenges facing the future CEO.

She was speaking after Remy Cointreau predicted that its current operating profit for the year would be flat because of a weaker than expected first half as falling tourism in Hong Kong and promotional spending hit earnings.

The group’s share price has more than doubled since Chapoulaud-Floquet, a luxury sector specialist, took over in September 2014 with a strategy focussed on selling spirits priced at $50 or more a bottle. The strategy has also benefited from a rebound in Chinese demand.

“We are on the right track and we will continue to invest behind our brands,” she said.

The French company on Thursday kept its medium-term outlook, reiterating its aim to generate 60%-65% of turnover from spirits sold at $50 a bottle or more and its ambition to become “the world leader in exceptional spirits”.

DISAPPOINTING PROFIT OUTLOOK

Current group operating profit for the six months to Sept. 30 reached 138.3 million euros (119 million pounds), lagging a company-compiled consensus from 15 analysts who forecast current operating profit of 143.3 million euros.

By 1038 GMT, Remy Cointreau shares were down 2.9% as analysts focussed on the flat profit guidance for the year, which lagged the market consensus for a 4% rise.

“We like Remy’s category exposure and vision for the company as a super-premium business. However we see risk of de-rating against high valuation given negative earnings revisions and low visibility on timing of recovery,” said Jefferies analysts.

Operating profit at the Remy Martin cognac division, which makes over 80% of group profit, reached 126.9 million euros in the first half.

This marked a like-for-like rise of 0.9%, below analysts expectations for 1.4% growth.

This reflected the good demand for cognac in mainland China where sales of the group’s cognac categories were growing at double-digit rate, but also the fall in tourism in Hong Kong and slower than anticipated stock replenishment by U.S retailers.

“We had a slow start in the U.S. but I am very confident for the second half,” Chapoulaud-Floquet said.

Remy Cointreau group sales fell an already reported 3.6% in the first half on a like-for-like basis.

Reporting by Dominique Vidalon; Editing by Edmund Blair and David Evans

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