July 20, 2018 / 10:40 AM / 2 months ago

Remy's first quarter sales beat forecasts as demand in China proves strong

PARIS (Reuters) - Strong demand from China helped cognac sales at French spirits group Remy Cointreau (RCOP.PA) beat expectations, with the figures lifting its share price on Friday.

Remy has focused on selling spirits priced at $50 a bottle or more as part of a strategy that has benefited from a rebound in Chinese demand, although recent price rises have dampened demand in America and Europe.

The maker of Remy Martin cognac and Cointreau liquor said it expected the situation to normalise in the coming quarters.

The company’s finance chief Luca Marotta told analysts that first quarter sales were “well in line with group expectations”, and he predicted an acceleration in the coming quarters.

He also said he was sticking to comments made in June about the market consensus for current operating profit for the financial year and was “fine” with 13 percent growth estimates.

First quarter sales reached 241.5 million euros ($281.7 million), representing like-for-like growth of 5.9 percent from last year - above analysts’ expectations for 5.3 percent growth.

Revenues grew on a double-digit basis in China on a like-for-like basis, despite the price hikes.

Remy’s strategy to focus on premium brands has differed from that of rival Pernod Ricard (PERP.PA), which has launched less expensive products in China.

Sales of Remy Martin cognac, which account for about 75 percent of group profits, rose 11.1 percent on a like-for-like basis thanks to “highly favorable trends in Greater China and sustained growth in Singapore, Australia and Japan,” the company said.

Nevertheless, there was an overall slowdown in sales growth from the 18.3 percent achieved in the fourth quarter, when demand was boosted by Chinese New Year festivities.

The end of distribution contracts for partner brands also weighed on sales in parts of Europe, the Middle East and Africa, in contrast to solid performances elsewhere in Russia, Britain and Germany, added Remy.

SHARES RISE

Remy shares rose 2 percent, among the top performers on the Paris stock market .SBF120.

In recent weeks there has been investor concern around trade tariffs. The EU’s decision to tax U.S bourbon in response to U.S aluminum tariffs on EU imports has raised the spectre of potential retaliatory measures on EU spirits imports to the U.S.

The United States is the Remy’s largest market and when asked about that risk, Marotta replied: “In the case of a trade war, we would have to increase prices.”

“We cannot change the way we are building our operations. We cannot produce cognac in Texas” he added.

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Kirsten Donovan

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