January 24, 2020 / 7:07 AM / a month ago

UPDATE 3-Remy Cointreau shares slump after sales drop, coronavirus concern

* Q3 sales 290.2 mln euros, down 11.3% like for like

* Co holds off annual and medium-term targets as new CEO arrives

* Concern over coronavirus outbreak in China

* Shares down 10%, hit lowest in nearly a year (Adds CFO comments from call on coronavirus, analyst comment, writes through)

By Dominique Vidalon

PARIS, Jan 24 (Reuters) - Remy Cointreau wiped almost half a billion dollars off its stock market value on Friday after posting a sharp drop in quarterly sales and warning over the potential impact of the coronavirus outbreak on demand for its premium cognac in China.

The French-based maker of Remy Martin cognac and Cointreau liquor posted a worse than expected 11.3% fall in like for like third-quarter sales and suspended its outlook guidance as newly installed chief Eric Vallat takes stock of its prospects.

Its shares slumped as much as 10%, on track for their biggest daily loss in more than a decade and hitting their lowest in nearly a year.

The company told investors they would have to wait until June 4, when it releases full-year earnings, to get an update on the group’s strategy.

“The potential impact of the coronavirus, if any, will be significant for our business because we are exposed to China,” finance chief Luca Marotta told analysts on a call. “We do not have a quantified scenario but clearly we are concerned as China is a major growth engine.”

Group sales reached 290.2 million euros ($322 million) in the three months to Dec. 31, against an average forecast for a 6 percent decline in a company-compiled poll of 16 analysts.

Cognac sales - which make 72% of the group total - fell 7.6%, against expectations for a 2.3% decline.

Demand for cognac in Hong Kong was impacted by protests in the region, while slow stock replenishment in the United States, and changes in distribution contracts in Europe, also weighed.

These negative factors more than offset a robust performance in mainland China, where cognac sales have been growing at a double-digit rate in volume and value.

In China, the Lunar New Year, a crucial moment for the drinks industry in that country, starts on Jan. 25. This year’s event takes place amid rising concern about the coronavirus outbreak in the country, which could hurt sales of high-end brands exposed to China.

CITIES IN LOCKDOWN

“The coronavirus outbreak has so far been more limited and less fatal than 2003’s SARS epidemic,” analysts at Citigroup said in a note. “However, coming just ahead of Chinese New Year celebrations, and with some Chinese cities already in lockdown, the potential for the crisis to impact European beverage organic sales growth and earnings trajectories in the months ahead is very real.”

China, where Remy Cointreau makes an estimated 20% of its profits, is a key market for Remy, along with the United States.

“I do not think there will be any impact of the coronavirus for the Chinese New year in terms of shipments because it is tomorrow,” Marotta said. “But if there will be an impact on on-trade, this will translate into slower replenishment from our distributors and a potential slowdown in coming months.”

Richemont’s Vallat in December took over as CEO from Valerie Chapoulaud-Floquet, architect of Remy’s push towards higher-priced spirits to boost margins.

Remy shares have more than doubled since Chapoulaud-Floquet’s appointment in September 2014 with a strategy focused on selling spirits priced at $50 or more a bottle. The strategy had also benefited from a rebound in Chinese demand.

The group said it had decided to hold off on previously provided annual and mid-term goals, but was nevertheless confirming “the pertinence of its value strategy”. It said the publication of annual results on June 4 would be the occasion to provide a new strategic roadmap.

Marotta however acknowledged the group was holding off on previous guidance for a flat operating profit for the current year because it lacked visibility on the fourth quarter, citing slower than expected cognac stock replenishment in the United States, the Hong Kong situation and the coronavirus risk.

($1 = 0.9014 euros)

Reporting by Dominique Vidalon Editing by Christian Lowe and David Holmes

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