Shares of Rémy Cointreau (EPA:RCOP) dropped by more than 5% on Wednesday, as the company issued its third warning in just four months, signaling a continued slowdown in its business.
The French wine and spirits producer revised its full-year organic sales growth guidance to the lower end of its previously forecasted range, now expecting a decline closer to 18%.
The company reported a 21.5% drop in organic sales for the third quarter of fiscal 2025, slightly better than the consensus estimate of a 23.7% decline, but still reflecting challenges in key markets.
Analysts had been predicting a smaller drop of 16.9%. Despite maintaining its EBIT margin guidance, the repeated downgrades raised concerns about the company’s growth prospects and its ability to recover in the near term.
This warning, coming just months after two others, has led to mounting concerns over the company’s performance. In the U.S., Rémy's cognac sales remained under pressure, with value depletions down in the mid-teens percentage-wise and only a modest improvement in volume depletions.
“We note that although US cognac value depletions remain weak at -mid-teens% y/y, a modest sequential improvement in US cognac volume depletions (-11.5% in Q3 vs -11.9% in Q2),” said analysts at Morgan Stanley (NYSE:MS) in a note.
Analysts noted that despite slight improvements in some U.S. states, the broader market remains sluggish, particularly in key regions like Illinois and New York, where trends have been weaker.
In China, the company's performance was equally disappointing, with cognac sales falling by low double digits.
This decline was partly driven by challenging domestic conditions and weaker sales in Travel Retail. While direct sales channels like e-commerce showed growth, the overall market trends suggest a difficult environment for luxury spirits, with the high-end segment still suffering from “luxury shaming” and other pressures.
Across Europe and the Middle East, Rémy also struggled with competitive pressures and weak sales, although Liqueurs and Specialties sales showed some growth.
Nonetheless, analysts said that these factors were not enough to offset the broader sales decline, which ultimately led to the third warning in as many months.
With shares trading at around 23 times its next-12-month price-to-earnings ratio, analysts at Morgan Stanley believe the stock is vulnerable to further declines.
The repeated guidance cuts have raised concerns about the company's long-term growth trajectory, especially as it trades at a significant premium to other European staples.
Although the company maintained its long-term goals, the persistent weakness in key markets and the uncertainty surrounding its recovery plans have cast a shadow over its near-term outlook.
Analysts at Stifel said in a note that the cognac oligopoly presents one of the strongest barriers to entry in the industry.
However, the company's exposure to cognac (65% of FY24 sales, down from 71% in FY23) can be a liability during periods of market weakness.
Recent declines in cognac demand in the U.S., increased by destocking activities, are negatively impacting earnings and investor sentiment, Stifel added.
