Remy aims to reassure over China concerns as sales rise

By Dominique Vidalon
Cognac is poured into a glass at the Remy Martin distillery in Cognac, southwestern France, October 8, 2012. REUTERS/Regis Duvignau/File Photo

By Dominique Vidalon

PARIS (Reuters) - French spirits group Remy Cointreau posted stronger-than-expected third quarter sales and struck a confident note over its prospects in China, even as increasing signs of a slowdown in that country have started to hit global markets.

Group sales reached 348 million euros ($395 million) in the three months to Dec. 31, showing like-for-like growth of 8.7 percent which beat forecasts for an 8.2 percent increase.

The maker of Remy Martin cognac and Cointreau liquor, which is trying to sell more of its higher-priced spirits to boost profits, also kept its full-year profit growth guidance intact.

Finance chief Luca Marotta told analysts that Remy's cognac sales in China were growing 20 percent on average.

"We are confident we can keep on with that trend," said Marotta, who added he remained comfortable with market estimates for a 13.5 percent rise in full-year current operating profits.

Nevertheless, Remy shares fell 1.7 percent by mid-session trading, with global markets on the backfoot in the wake of data showing a slowdown in China - the world's second-biggest economy and a key market for Remy along with the United States.

There is concern that trade tensions between Beijing and Washington could have a knock-on effect on Chinese consumers, whose appetite for branded goods has supported a rebound in the global luxury industry over the past two years.

'ZEN' OVER CHINESE SITUATION

Remy Cointreau, which makes the Louis XIII luxury cognac that sells for over $2,000 a bottle, would be particularly vulnerable to a slowdown in China, analysts have said.

"While China continues to show strong performance, wider macro concerns will likely continue to weigh on sentiment," wrote analysts at investment bank Jefferies, which kept a "hold" rating on Remy shares.

Marotta told analysts that Remy was "quite zen-like" about a possible slowdown in China as it believed it was better prepared than in the past to react quickly to a crisis in China, having a more balanced brands portfolio and regional exposure.

The United States is Remy Cointreau's top market, with the Americas region contributing 37 percent to sales against 35 percent for Asia-Pacific.

Remy said cognac sales were growing at double-digit rates across all regions. Cognac sales advanced by 15.6 percent in the third quarter, accelerating from 12 percent growth in the second quarter, and beating analysts' expectations of 13.3 percent.

The group 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 as well as solid sales in the United States, its top market.

Gregoire Laverne, fund manager at Roche Brune Asset Management, said Remy's results were solid and its share price reflected investors booking profits on a rally in the stock since the start of 2019 rather than more serious concerns.

Nevertheless, others were more cautious, with brokerage Liberum keeping a "sell" rating on Remy shares. ($1 = 0.8808 euros)

(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta/Keith Weir)