FORECASTS AND ANALYSIS OF REMY MARTIN SALES

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Remy Cointreau logo

Source: Jefferies International Limited

Edward Mundy

September 27, 2018

We expect a continued strong performance in the Cognac division (c.80% profits) and expect 2QE group org sales +9.0% (vs 1Q 5.9%). We like Remy's category exposure and see upside as the CEO rolls out her vision for the co as a super-premium business. While we like Remy, trading at 29.9x cal 2019 PE, shares need upgrades to perform. We remain at HOLD.

What's new? Remy reports 1H sales on 17 October. We expect 1H org sales +7.6% with 2Q +9.0% vs 1Q 5.9%. The drivers of the acceleration in 2Q, we believe, are continued robust cognac demand (we model 2Q cognac org sales +12% vs 1Q +11.1%) with benefit of easier comps, as well as some positive impact from technical effects in Partner Brands. For full details of our expectations, refer to detail within this report.

Cognac (67% sales / 81% profits) - likely to remain robust. We model 1H cognac org growth +11.6% with 2Q +12% vs 1Q +11.1%. Within this, we expect US and Europe to be a bit stronger vs 1Q. Whilst Asia depletions (sell-out) momentum is likely to be unchanged vs 1Q (vols solid DD, sales strong DD), we believe shipments (sell-in) will be more normalised. In 1Q, China cognac shipments ran modestly ahead of depletions with some inventory replenishment after the strong CNY; we expect shipments to match depletions in 2Q.

COGNAC SALES IN THE USA ARE BOOMING THEY SAY

Cognac Economy is Up

Source: ShankenDailyNews

Cognac is enjoying a renaissance. Last year global volumes increased by a robust 5.5% to 15.4 million cases, with the U.S. at the forefront, accounting for nearly 40% of total consumption. After crossing the 6-million-case mark on 9.7% growth in 2017, Cognac has now expanded its U.S. volume by nearly 2 million cases in just the past three years. With demand skyrocketing—particularly for the VS segment—keeping adequate supply in the pipeline is now the major concern.

Hennessy continues to drive the market in the U.S., averaging an annual increase of 12.9% over the past five years. In 2017, the brand increased 7.4% to just under 4 million cases, and might have risen higher if not for its supply constraints.

Still, Hennessy is now nearly twice as large as it was in 2012, when it depleted 2.16 million cases. “Hennessy has plans for growth across all our qualities in the coming years; however, we do need to continue to manage our growth and supply carefully,” says Giles Woodyer, senior vice president for Hennessy at Moët Hennessy USA. “We’re continuously improving and building our supply development efforts including expanded relationships with growers, new plantations, and strategic investments such as our recent considerable investment in our packaging and logistics site, Pont Neuf, which opened last year.”

This new 280,000-square-foot Pont Neuf facility will allow Hennessy to produce around 10 million cases annually by 2020, up from 7 million cases currently.

Read more at ShankenDailyNews

GROWTH & EXPORTS OF COGNAC

Cognac exports in 2017-18 are valued at €3.2 billion, an increase of 8.2% in volume (250.9 million bottles) and 5.4% in value compared to 2016-17.

This is the fourth consecutive year of export growth, according to the Bureau National Interprofessionnel du Cognac(BNIC), the cognac trade body.
The American zone, with ALENA, was the largest export area, taking 89.8 million bottles, a increase of 9.4% in volume and 0.2% in value. The US was the largest ALENA export zone, with a ninth consecutive year of export growth.

The Far East, with 60.9 million bottles, was in second place with a growth of +13.5% in volume and +12.4% in value. Singapore (26.6 million bottles) and China (26.2 million) were the main export countries.

In Europe, exports were stable at 41.3 million bottles, down by 2% in volume but up 3% in value.
Source: Vinexpo Newsroom

ONE OF THE WORLD'S OLDEST BOTTLE SOLD FOR $121,000

A bottle of Vin Jaune, meaning literally ‘yellow wine’ in French, has sold for a record price of over €100,000 to a Canadian buyer.

One of the oldest bottles of wine in the world was sold on Saturday, 26 May, at an auction in France, for €103,700 ($121,000).

The exceptional longevity of the yellow wine of Arbois comes from its particular mode of elaboration, which consists of raising the wines “under veil”; that is to say, with a form of oxidation which transcends perfumes and limits ageing.

The wines have been lovingly cared for by eight generations of heirs of Pierre Vercel (1694-1754), whose family is known to have made wine in Arbois since the 14th century and whose Grand Commander has maintained the tradition. He had remained discreet about the number of bottles he had carefully preserved, and their location.

Source: Vinexpo-Newsroom

USA COGNAC SALES COULD SURPASS 6 MILLION CASES SOLD

 

Cognac Sales Image Logo Icon

Cognac continues to thrive in the USA with category leader Hennessy leading the way. Or dominating would be a more proper statement.

Depletion was 17% up in 2016 compare to 2015, with over 1 billion USD sales which is 5 times more than 2011 in the US.

Hennessy makes 1.6 billion USD sales of cognac/year/world and it is looking at beaking the 2 billion USD sales soon which would be the new high.

Remy Martin plays well as a 2nd with +9% sales and a volume of  823,000 cases sold in 2016.  Remy Martin is in contrast to Hennessy in particular focusing on non-VS qualities such as VSOP and 1738 Accord Royal, noting sales from Jan-Sept to be +15% with $431m worldwide, and interest for higher end cognac in the USA.

Courvoisier (owned by Beam Suntor) is the third-largest Cognac in the U.S., and advanced by 6.2% to 470,000 cases in 2016.

Martell (owned by Pernod-Ricard) ranked fourth, and crossed 100,000 cases last year on 6% growth after starting a come back in the USA in 2016. They had left to focus on China but ...
Cognac d’Ussé (a Bacardi brand) launched in 2012, made in 2016 +48% with 86,000 cases sold. It is produced by Cognac Otard not sure why Bacardi is not interested in Otard!

Source: ShankenNews

SALES GROWTH FOR CALVADOS BUT COUNTERFEITING COMES WITH IT

Calvados, Cider and Pommeau

Calvados is suffering counterfeiting as well now with a 7% growth/year. Fake or want-to-be brands are copying or just simply alluding to Calvados to gain consumer attention but this is not fair and fraud really.

Since the 1990 Calvados has enjoyed growth thanks to export in about 100 countries. It might not be the mainstrean spirit but the little protected appellation in Normandy is getting attention all across the world.
No wonder, an original Calvados is delicious and unequalled!

Source: RVI

GOOD END OF THE YEAR SALES FOR REMY COINTREAU

Remy Cointreau

After a strong third quarter, Rémy Cointreau’s sales were up by nearly 5% (and 6% on an organic basis) over the first nine months of its fiscal year. The company’s organic sales rose by 9% in the third quarter (ending December 31, 2016), as high-single digit growth in the U.S. market combined with a double-digit advance in China to produce significant progress.

Rémy’s third-quarter sales bump more than doubled analysts’ projections. Flagship brand Rémy Martin was the company’s growth engine over the first three quarters of its fiscal year. 

The Cognac brand’s sales grew by 11.2% on an organic basis. Meanwhile, in China, the brand’s depletions were up by high-single digits, in part because of the earlier Chinese New Year. Beyond Rémy Martin, Rémy Cointreau’s liqueurs & spirits unit (led by Cointreau) grew by 4.1% over the first three quarters, while its partner brands business fell by 15%, mostly due to the end of distribution contracts for Piper Heidsieck and Charles Heidsieck in several key markets.

Source: Shanken Daily News

MARTELL IS +18% TO DATE FOR SALES IN THE US

After posting a 4% sales increase to $1.8 billion in the U.S. market in its fiscal year ended in June, Pernod Ricard sees that progress continuing.

Pernod Ricard Logo

The U.S. accounts for 19% of the company’s global sales. Pernod Ricard cited the market’s overall premiumization progress.

Ultra-premium spirits ($42-$84) and the prestige segment ($85+), which have smaller shares, rose 13% and 17% respectively.

MARTELL COGNAC +18% IN THE USA for the first 52 weeks of 2016.

Sources: Shanken Daily News

2016 MIGHT MARK RECORD COGNAC SALES

Before the holidays seasons cognac sales are already showing a strong sales for 2016 in the

"Shipments of Cognac to the U.S., by far the global category’s largest market, crossed the 5-million-case mark on 13.5% growth last year, driven by the double-digit progress of Hennessy, Rémy Martin and Martell" says Shanken Daily News.

With growth continuing in 2016, U.S. depletions could hit 5 million cases and value could cross €1 billion ($1.1b) by year-end.

Impact Databank Cognac Sales in the USA, October 2016

1. Hennessy continues to dominate the category, accounting for 44% of worldwide volume and 66% of the U.S. Cognac market. With its global volume expanding by 55% since 2005, to 6 million cases, Hennessy has risen to become the world’s third most valuable spirits brand by retail sales, at $3.5 billion (trailing only Johnnie Walker and Smirnoff). “A significant portion of consumers drinking white spirits a few years ago have come over to Hennessy,” says Giles Woodyer, senior vice president, Hennessy at Moët Hennessy USA.
2. Rémy Martin remains a distant second to Hennessy in the U.S., but it too has been on an impressive run. In the 12 months through June, Rémy Martin posted a 15% increase in U.S. depletions, and in the first half of this year the brand’s VSOP jumped 20% in IRI channels.
3. Martell, which neared 100,000 cases in the U.S. last year, is getting increased focus in the market. Brand-owner Pernod Ricard is looking to leverage robust trends in both Cognac and Bourbon with a new hybrid product, Blue Swift ($50), which was finished in Kentucky Bourbon barrels.
4. Bacardi’s d’Ussé brand has also been making strides. Thus far in Bacardi’s fiscal year (beginning in April), d’Ussé’s revenues are up 20% compared with last year, led by its VSOP quality ($50). Meanwhile, senior brand manager Tyler Phillips tells SND that d’Ussé XO ($230), which continues to expand into new markets, is growing exponentially from a small base.
5. Beam Suntory’s Courvoisier brand sells about one-third of its volume in the U.S. market.

The Cognac category comprises about 4% of all spirits by dollar value in the U.S., according to Nielsen, but it’s growing at 19%, compared with total spirits category growth of 6%.

The whisky category revival has inspired greater consumer interest in brown spirits, specifically among multicultural millennial males. They are looking for premium brands that project success and sophistication, and so Cognac is well-positioned to get their attention. 

Hence, non premium cognac brands such as Salignac and Ansac are seeing negative growths in comparison.

Source: Shanken Daily News

HENNESSY GOOD SALES RESULTS FOR 2015 IN THE USA

Moët Hennessy’s flagship  brand, namely, Hennessy Cognac continues to see sales increases in its U.S. market.

With a 64% share of the U.S. Cognac market, Hennessy’s accelerated pace helped drive the category’s total U.S. depletions to just under 4 million cases on a 7.7% increase last year.
Hennessy is trying to (1) widen Cognac’s audience and (2) cognac's consumption occasions.

Hennessy Cognac is a leader in the category to invest in reaching out to mixologists and have significantly built up on this momentum. But also through its campaign "never stop.never settle" and the inspiration from the "wild rabbit", Hennessy has drawn a great deal of positive attention.

The breadth Hennessy's product line allows the brand to cover wider market segments: VS ($32), Black ($40) and VSOP Privilège ($50-$60) tiers. In a Upward stretch the range also includes Hennessy XO ($160), Paradis ($250), Paradis Impérial ($3,000) and the deluxe model Hennessy Richard ($4,800).

With Hennessy's limited edition Artist Series bottles, such as with with OS GEMEOS, FUTURA, SHEPARD FAIREY, KAWS, KESH BURROWS, and more recently RYAN MCGINNESS.

The brand is able to provide experiential marketing views so important to millennial consumers as emotional references. This target is very focused on the pleasurable and meaningful aspects of brand interaction.

Hennessy Product Line 2015

To keep up with growing global demand, Moët Hennessy recently broke ground on a new 26,000-square-meter (280,000-square-foot) shipping and bottling facility in Cognac. The Pont Neuf facility will have a production capacity of about 10 million cases a year when it becomes operational, expected by 2017.

Source: Shanken News, Hennessy Cognac

SCOTCH WHISKY ASSOCIATION ANNOUNCES A WORLDWIDE DECLINE OF SALES

Cognac is not the only brown spirit to suffer from a world sales decrease. Scotch whisky saw it worst sales decrease this year from January to June in 15 years, and this is not over.

Cognac and Scotch Sales Decline

According to the Scotch Whisky Association, exports fell 11% to £1.77 billion in the six months through June.
Major markets saw double-digit shipment decreases like the U.S. (-16% to £328 million/$538m), Germany (-22%), South Africa (-10%), Brazil (-19%), and Mexico (-27%). In Asia the drop was the worst with  China (-35%) and a key re-exporter to the Chinese market, Singapore (-46%) but also South Korea (-12%).
Still, a host of key markets enjoyed solid growth—such as France (+6%), Taiwan (+39%), United Arab Emirates (+26%), India (+31%), Australia (+4%) and Japan (+18%).

This declined is attributed to slowing down economies, China's grip on conspicuous consumption and a stronger currency exchange rate of the Pounds.

Source: Scotch Whisky Association

DECLINING SALES OF COGNAC BASED ON SHIPMENTS COMPLETED IN 2014

Global Cognac shipments declined markedly by volume and value in the year through June, with growth in the U.S. unable to offset continuing woes for the category in China. According to the Bureau National Interprofessionnel du Cognac (BNIC), shipments fell 7% by volume to 156 million bottles in the 12 months through June, with value down 10% to €2.2 billion ($2.85b).

Bureau National Interprofessionnel du Cognac BNIC Logo

A 19% slump in sales to the Far East—where shipment value amounted to €1 billion ($1.3b)—was blamed primarily on the ongoing government austerity drive in China. Cognac sales to Europe also declined, falling 12%, even as Eastern Europe posted volume progress. Meanwhile, shipments to North America—led by top Cognac export market the U.S., which accounted for 54 million bottles—delivered 6% growth by both volume and value.

Source: http://www.shankennewsdaily.com

Sales, Prices and Who Cares of Necessities

Cognac sales keep rising according to French parent companies of Martell and Remy Martin. This situation is mostly fueled by Asian markets and the continuous momentum of lifting sales in the US.

In an article from Reuters Paris last week, an official representative from Remy concluded that there was a sign of recovery in the US!

["All group divisions and all regions contributed to this performance. Growth rates were particularly outstanding in Asia. Signs of the recovery in the U.S. and Western Europe are confirmed," the maker of Remy Martin cognac, Cointreau liqueur and Mount Gay Rum said in a statement.]

Interestingly, Remy noticed that the rising prices of Cognac in Asia were also positive factors of growth. That reminds me of my economics classes where it was mentioned about price elasticity and the different effect that it had for luxuries where compared to necessities a price increase would increase demand. Hence, cognac is a luxury!