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China's thirst for cognac helps Remy third-quarter sales beat forecasts

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China's thirst for cognac helps Remy third-quarter sales beat forecasts
Bottles of Remy Martin VSOP cognac, Remy Martin XO cognac and St-Remy XO Brandy are displayed at the Remy Cointreau SA headquarters in Paris, France, January 21, 2019. REUTERS/Benoit Tessier   -   Copyright  BENOIT TESSIER(Reuters)
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By Dominique Vidalon

PARIS (Reuters) – French spirits group Remy Cointreau <RCOP.PA> delivered stronger-than-expected third quarter revenues, as the early timing of the Chinese New Year boosted premium cognac sales while demand was also robust in the United States.

The Chinese New Year, a crucial part of the calendar for the drinks industry in that country, starts on Feb. 5 this year as opposed to Feb. 16 last year.

Remy said this earlier start had helped cognac sales in the third quarter in Asia Pacific, and added that cognac sales were growing at double-digit rates across all regions.

Group sales reached 348 million euros (£306.8 million) in the three months to Dec. 31, showing like-for-like growth of 8.7 percent. This compared with average expectations of 8.2 percent growth in a company-compiled poll of 16 analysts.

Remy, which is trying to sell more of its higher-priced spirits to boost profits, also kept its goal for growth in current operating profit at constant exchange rates and scope for the full year ending March 31.

Finance chief Luca Marotta said in November he was “OK” with market estimates for a 13.5 percent rise in full year 2018/19 current operating profit at constant exchange rates and scope.

Cognac sales alone grew 15.6 percent like-for-like in the quarter, accelerating from 12 percent growth in the second quarter, and beating analysts’ expectations of 13.3 percent.

Remy Cointreau said the earlier timing of the Chinese New Year lifted its Asia Pacific sales by four million euros in the third quarter.

Nevertheless, global financial markets have been volatile in the wake of data showing a slowdown in China, which is the world’s second-biggest economy.

There is also concern over trade tensions between Beijing and Washington and a knock-on effect on Chinese consumers, whose appetite for branded goods has supported a rebound in the global luxury industry over the past two years.

Remy Cointreau, which makes the Louis XIII luxury cognac that sells for over $2,000 a bottle, would be particularly vulnerable to a slowdown in China, analysts have said.

The group has focused on selling spirits priced at $50 a bottle or more as part of a strategy that has benefited from a rebound in Chinese demand as well as solid sales in the United States, its top market.

Remy Cointreau shares, which fell 14 percent last year, have risen 4 percent so far in 2019. The stock trades at a forward price to earnings ratio of 36.60, at a similar multiple to luxury stocks such as Hermes <HRMS.PA>.

(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta)

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