PARIS (Reuters) - French spirits group Remy Cointreau (RCOP.PA) on Thursday expressed confidence revenue would rise in the second quarter after a weak start to the year and said that it could deliver double-digit sales growth in China.
The company has been focusing on selling spirits priced at $50 a bottle or more as part of a strategy that has benefited from a rebound in Chinese demand.
But price increases from April, although well flagged, contributed to a 3% fall in sales in the first quarter, with the termination of distribution contracts in the United States, the Czech Republic and Slovakia also having a negative impact.
Nevertheless, the maker of Remy Martin cognac and Cointreau liquor maintained its full-year outlook, targeting a pick up in sales from the second quarter.
Remy shares fell in early trading but were up 2.7% by 1100 GMT, adding to gains of 30% so far this year, with its stock market valuation closer to that of luxury good companies than food and drink firms.
The weaker results were published after the group’s chief executive Valerie Chapoulaud-Floquet, the architect of its push towards higher-priced spirits to drive profit margins, said last week she will step down by the end of 2019 for personal reasons.
Sales at Remy Martin cognac, which accounts for more than 80% of the company’s profit, grew 5.5% on a like-for-like basis in the first quarter that ended in June, slightly above analysts’ expectations for 4.4% growth but a marked slowdown from 7.9% growth in the fourth quarter of FY 2018/19.
That reflected the unfavourable impact of price increases, notably in the United States but also in Greater China where sales growth slipped into the single-digits.
While mainland China and Taiwan still posted double-digit sales growth, Macau and Hong-Kong, where political protests weighed on sales, lagged.
However, the trend remained favourable for the highest-quality cognac in Southeast Asian countries, Japan and Africa.
“We are absolutely calm about accelerating in Greater China and Asia Pacific. We reiterate our guidance for double-digit growth in China this year,” Finance Chief Luca Marotta said.
Remy said last month that its medium-term goal was to gradually drive the current operating margin upwards.
It reiterated on Thursday that its 2019-2020 financial year would be in line with its medium-term objectives.
Jefferies analysts said Remy was one of the “most attractive long-term growth stories” given the high barriers to entry into the sector and the company’s focus on premium products. However, the group maintained its “hold” rating on the stock, citing the risks from potential U.S. tariffs and the change of CEO.
Marotta repeated that Remy Cointreau was prepared to raise prices further if the United States were to impose tariffs on imported spirits.
Total first quarter sales reached 223.2 million euros (£201.04 million), with the like-for-like 3% decline worse than analysts’ expectations of a 2.5% fall and the 7% growth posted in the fourth quarter of 2018.
Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Kirsten Donovan