(Bloomberg) -- Remy Cointreau SA’s Chief Executive Officer Eric Vallat said he’s finally seeing signs of a potential recovery in the crucial US market in comments that reversed an earlier share decline.
Shares in the French Cognac maker fell 6% in early trading after the company forecast a bigger-than-expected drop in annual sales. However, the stock later recovered and rose as much as 6.3% after Vallat said Remy is already preparing for a US upturn by investing more in its biggest brands such as VSOP champagne and Remy Martin, which has a partnership with the musician Usher.
“We have recently observed some encouraging signs on Cognac,” Vallat said on a call with analysts, adding that the US market overall is stabilizing.
Cognac sales have been particularly hard hit in the US where consumers have been reining in spending amid cost-of-living pressures. Unlike some rivals, Remy has resisted lowering prices to protect its margins although it has been cutting costs to counteract the US downturn, which should start to be recover by the end of the current year, the company said Thursday.
Remy still expects organic sales to decline by as much as 18% in the current fiscal year ending in March. This compares with the 11.8% analysts expected, according to estimates compiled by Bloomberg. The company’s stock is still down more than 45% in the past 12 months.
Tariff Threats
Cognac producers, including rival Pernod Ricard, have also been affected by China’s temporary anti-dumping measures on brandy imported from the European Union. Remy said while the impact of additional duties in China will be “marginal” for the current financial year, it will kick off an action plan to mitigate the effects beginning next year.
In China, online shopping now makes up a quarter of its sales and the company is seeking to grow in the direct-to-consumer market, Vallat said.
The potential threat of the tariffs in the US under a Donald Trump administration is less of a concern than the potential hit the company faces in China, said Vallat.
“10% is not going to kill us for sure,” Vallat said in reference to Trump’s mooted universal tariff on all imports to the US.
Investors are going to need confidence that Remy’s earnings downgrade cycle is complete and that the company’s strategy to invest in the second half will allow it to exit the downcycle stronger, said Edward Mundy, an analyst at Jefferies.
(Updates with further share moves and context. A previous version corrected the size of sales fall in lead.)
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