Release Date: November 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Remy Cointreau (REMYF, Financial) maintained a strong gross margin of 72.5%, which is up 3 points compared to H1 '19/'20, despite facing cost production inflation.
- The company has implemented rigorous cost management strategies, reducing A&P expenses by one-third and OpEx by 6.8%, demonstrating operational resilience.
- Remy Cointreau (REMYF) has shown resilience in its Liqueurs & Spirits division, with a margin increase to 16.5% and a favorable currency effect contributing positively.
- The company is leveraging its strong position in e-commerce, with 25% of sales in China coming from this channel, and achieving double-digit sales growth during the Double 11 festival.
- Remy Cointreau (REMYF) is focusing on strategic investments and innovation, such as the launch of new products like Remy V, to appeal to younger demographics and expand its market reach.
Negative Points
- Group sales declined by almost 16% organically, reflecting broader macroeconomic challenges and impacting overall financial performance.
- Current operating profit decreased by 17.6% on an organic basis, with a slight decline in gross margin due to cost inflation and an unfavorable product mix.
- The U.S. market remains challenging, with aggressive pricing from competitors and a slower-than-expected recovery in Cognac sales.
- The Chinese market is experiencing volatility, with a lack of visibility and heightened uncertainty affecting sales and market confidence.
- Remy Cointreau (REMYF) anticipates a challenging second half, with a significant decline in Q3 sales expected due to high comparatives and ongoing market pressures.
Q & A Highlights
Q: Can you comment on the current pricing environment in the U.S. and China, particularly among competitors? Are there signs of stabilization? Also, how is the VSOP plan progressing in the U.S.?
A: The pricing environment remains aggressive, especially in the U.S., with competitors being quite aggressive on pricing. However, we are committed to maintaining our value strategy. The VSOP plan is a long-term initiative, and while we are seeing some improvement in depletions, it will take time to fully execute and see significant results. We expect critical progress in the upcoming semester. - Eric Vallat, CEO
Q: What gives you confidence in being ready for the recovery phase, and what are you seeing that encourages you to increase A&P investments?
A: Our confidence stems from easier comps and improving depletion trends, particularly in the U.S. We are reinvesting in A&P in a measured way, focusing on strategic opportunities. The depletions are better than sell-in, indicating destocking, and we expect to start growing again in the U.S. next year. - Eric Vallat, CEO
Q: How do you plan to achieve your medium-term guidance of a 32% margin, given the current challenges?
A: The main challenge is the vitality of the market and its recovery speed. We have optimized our cost structure, and while the top line may not grow as initially anticipated, we believe a combination of less top line and reduced costs can help achieve our targets. We see untapped opportunities in China and potential volume upsides in the U.S. - Eric Vallat, CEO
Q: With the current inventory levels being significantly higher than pre-pandemic, do you think adjustments are needed?
A: Our inventory levels are strategic investments for future growth. While they are higher, they are necessary to ensure we are prepared for recovery and future demand. We have adjusted our working capital strategy to align with current market conditions, but our long-term commitments remain unchanged. - Luca Marotta, CFO
Q: Regarding the margin compression in H2, is it mainly due to increased A&P, or are there other factors?
A: The margin compression is primarily driven by the weight of overheads relative to turnover, not just A&P. We are investing more in A&P, but the overheads' impact is significant due to the lower turnover. We aim to maintain a balance between cost optimization and supporting future growth. - Luca Marotta, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
