(Bloomberg) -- Remy Cointreau SA abandoned its forecasts for this year after a slump in Hong Kong dented the Cognac maker’s sales in the Christmas period and as a viral outbreak threatens business in China.
The stock fell as much as 10% Friday, the steepest decline in four years, after the company said that revenue fell 11% in the three months through December. That’s the third consecutive quarterly drop and almost double the decline analysts expected.
The souring performance trimmed the company’s market capitalization to 5.1 billion euros ($5.6 billion), which undervalues its Cognac assets, Chief Financial Officer Luca Marotta said on a call with analysts.
The company is looking to regroup as Eric Vallat of Swiss luxury watchmaker Richemont became its new chief executive officer at the start of December, replacing Valerie Chapoulaud-Floquet. Political protests in Hong Kong have disrupted sales of high-priced spirits, and in China, the source of half of its growth last year, the outlook for luxury spending is worsening amid the spread of a viral lung disease.
The company said it’s holding off on its targets for this year and the medium-term given the CEO change. In November, Remy Cointreau forecast a slight increase in adjusted operating profit in the year through March. For the midterm, Remy had set a target of getting about two-thirds of its revenue from spirits that cost more than $50 a bottle in order to drive profitability.
China, the source of 20% of Remy’s profit according to Jefferies analysts, has restricted travel from several cities that combined are home to 40 million people. That threatens consumption during the Lunar New Year festivities. Marotta said the company is “clearly concerned” about the effect of the virus on cognac sales, which usually peak during the celebrations.
Remy Cointreau intends to raise prices in that market even as the disease weighs on consumption, Marotta said. The company doesn’t currently expect the virus to affect e-commerce, the source of more than a fifth of the company’s revenue in China and a more profitable business line. The distiller also expects higher prices in the U.S. will help its gross margin improve this year.
The company’s Cognac shipments fell 6.3% in the nine months through December, only partially compensated for through a shift to more expensive products.
What Bloomberg Intelligence Says:
“Chinese demand remains strong, yet unrest in Hong Kong, and U.S-China and U.S. EU trade disputes makes the timing of achieving its sales goals challenging.”
-- Duncan Fox, BI consumer-goods analysts
Travel Crisis Behind Remy Cointreau Sales-Guidance Halt: React
The decline in Remy Cointreau’s sales follows more than three years of growth.
The end of distribution contracts for third-party brands will cut 56 million euros off full-year sales and 5 million euros off earnings, the company repeated. Vallat will present a new strategy on June 4 when Remy Cointreau reports annual results.
(Updates with CFO comment in third paragraph)
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