Rémy Cointreau’s Profit Is Hit by China Slowdown; Beijing’s Measures to Scale Back Gift Giving Hurt Drinks Makers

Rémy Cointreau’s Profit Is Hit by China Slowdown

Beijing’s Measures to Scale Back Gift Giving Hurt Drinks Makers

RUTH BENDER

Updated Nov. 26, 2013 2:18 p.m. ET

PARIS—After years of steady growth, Rémy Cointreau

SA RCO.FR -8.31% warned that China’s crackdown on extravagant gifts is set to hit the company’s profit sharply this year and dent sales for some time, the latest sign of how major liquor makers face broad fallout from the shift in policy. The French company has suffered along with rivals in recent quarters as the Chinese government has scaled back on sponsored banquets and gift giving, which for years had propelled sales of high-end spirits and other luxury goods.“The situation in China is clearly weighing on our outlook,” Chief Executive Frederic Pflanz said Tuesday during a conference call with analysts. “We do not expect any improvement in the Chinese market in the coming months.”

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Rémy Cointreau said it expected that current operating profit would drop at least 20% for the year ending March 31. The warning battered its shares and those of rivals such as Pernod Ricard

SARI.FR -2.60% .

“The group is being very cautious for the 2013-2014 year,” Christine Ropert, an analyst with Gilbert Dupont, wrote to investors. Analysts had expected Rémy Cointreau to predict flat growth.

Mr. Pflanz said sales in China proved disappointing during key events recently, such as the midautumn festival, and that he didn’t expect the coming Lunar New Year sales season to be positive.

Rémy Cointreau’s warning came a month after Pernod Ricard said the situation in China will weigh on profit for fiscal 2014, highlighting how companies increasingly are running into obstacles in a market that had been one of their brightest hopes. Diageo DGE.LN -1.60%PLC also has flagged the shift in Chinese government policy as weighing on sales.

Rémy Cointreau over the past years has posted double-digit increases in full-year operating profit, boosted mainly by strong demand for ultraexpensive cognacs and other spirits in China.

Despite the current slowdown, Rémy Cointreau continues to invest in high-end drinks, marketing and promotional activity in China to be ready for when growth returns to normal, Mr. Pflanz said. “We are confident China will still grow in the medium and long term,” he said.

Rémy Cointreau said net profit fell 20% to €69.3 million ($93.7 million) for the six months ended Sept. 30 from €86.6 million a year earlier. Higher charges also weighed on the company’s results.

Operating profit fell 6.2% to €132.7 million from €141.5 million, hurt by slowing cognac sales in China. Operating profit for the Rémy Martin cognac brand declined 12% after years of double-digit growth.

The company last month posted a 6.3% drop in sales for the half as strong growth in the U.S. couldn’t offset the slowdown in China. Part of the decline stemmed from Chinese retailers getting rid of large inventories after disappointing sales during this year’s Lunar New Year, a phenomenon that is set to continue through Rémy Cointreau’s third quarter.

Shares in Rémy Cointreau fell 8.3% to €66 in Paris. Pernod Ricard’s share price sank 2.6% to ¥84.33.