July 18, 2014 / 6:49 AM / 5 years ago

UPDATE 2-Remy sees China cognac sales picking up later this year

* Q1 sales 214.8 mln euros, down 5.7 pct like-for-like

* Q1 cognac sales down 15 pct l-f-l vs 32 pct fall in Q4

* Remy keeps full-year goals, shares up 4 pct

* Cognac shipments to China could pick up from Q3 - CFO (Recasts with CFO comments, shares, analysts)

By Dominique Vidalon

PARIS, July 18 (Reuters) - Spirits group Remy Cointreau said it expects demand for cognac in China to pick up later this year, after blaming a Chinese government crackdown on ostentatious spending for another drop in group sales in the first quarter.

The French maker of Remy Martin cognac and Cointreau liqueur appeared optimistic on the current year on Friday, predicting that cognac shipments to China could pick up from the third quarter. Its shares rose 4 percent, reversing earlier losses.

Cognac accounts for 80 percent of the company’s operating profit, with China contributing half of cognac profits.

Weakness in China led to the abrupt resignation of CEO Frederic Pflanz in January after the company issued a profit warning.

Cognac sales slumped again in the first quarter of the fiscal year, by 15 percent year-on-year, the company said on Friday, although that was better than a 32 percent drop in the previous three months, helped by robust demand for spirits in the United States, Japan and other parts of Asia.

The group kept its goal of achieving organic growth in sales and in current operating profit in its 2014-15 financial year which began on April 1.

“Growth will most probably be focused on the second half of the year,” finance chief Luca Marotta told analysts.

Remy Cointreau’s focus has been on deluxe drinks like Louis XIII cognac, which sells for 2,500 euros ($3,400) a bottle. This has made it more vulnerable to China’s anti-corruption crackdown on gift-giving and personal spending by civil servants than rivals such as Diageo and Pernod Ricard.

Remy Cointreau said group sales overall reached 214.8 million euros in the three months to June 30. Like-for-like sales fell 5.7 percent from a year earlier, against a 16 percent drop in the fourth quarter of fiscal year 2013/14.

The figures were better than consensus expectations of a 7.3 percent organic decline to 212.4 million euros, Bryan Garnier analysts said in a note, keeping a “buy” rating.

On the bright side, the liqueurs and spirits division recorded an 11.3 percent rise in like-for-like sales, bolstered by solid demand for Cointreau in Japan, Eastern and Central Europe and in travel retail, while cognac demand was good in southeast Asia.

At 1002 GMT, Remy shares were up 3.85 percent at 65 euros, outperforming a 0.2 percent decline in the Stoxx Europe Food & Beverage index.

Sales at the cognac division were hit by continued destocking in China, tough comparisons with very strong demand in the United States a year ago and continued economic weakness in Europe.

De-stocking in China however continued at a slower pace than in the second-half 2013/14, Marotta said.


He reiterated Remy’s assumption that sales from wholesalers to retailers, restaurants and bars would stabilize in China in the fiscal year that began on April 1.

If that happened Remy’s cognac division could return to growth at a mid-single to low double-digit rate in China.

“Recent trends and the commercial performance of the first-quarter show the recovery scenario is on track,” said Gilbert Dupont analysts in a note.

Despite difficulties in China, Marotta reiterated that Remy was sticking to its focus on selling super-premium brands.

“We do not think the growth of the Chinese market will be driven by lower (priced) products. That is not our scenario,” he said.

Remy Cointreau named Valerie Chapoulaud-Floquet, a former L’Oreal and Louis Vuitton executive, as its new CEO last month.

Her arrival in September “introduces an unknown factor, but her background suggests a continuing focus on super-premium products,” Nomura analysts said in a note. ($1 = 0.7396 euros) (Reporting by Dominique Vidalon; Editing by Pravin Char and Susan Fenton)

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