Treasury Wines warns performance is still lagging in key markets
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Major winemaker Treasury Wine Estates has warned investors its performance in markets heavily impacted by the pandemic is running behind expectations as lockdowns and soaring case numbers continue to hinder sales.
Treasury, which makes wine brands such as Penfolds and 19 Crimes, held its annual general meeting on Friday. In a speech, chief executive Tim Ford told shareholders while overall performance through the first quarter of fiscal 2022 was solid, parts of the business were not performing as well as hoped.
Mr. Ford pointed to the company’s key luxury channels in America, Australia, and Asia where the COVID-19 pandemic is still causing delays in the recovery of wine consumption in bars, pubs, and restaurants.
He said this issue was particularly prevalent in the US, where re-openings were continuing at a “gradual pace”, slower than the company had anticipated.
“In Australia extended lockdowns in Sydney and Melbourne have resulted in the closure of the on-premise channel, delaying our execution plans outside of the large retailers, particularly for Penfolds,” he said.
“While the momentum in these channels is slightly behind, we remain confident that as vaccination programs gain momentum and restrictions ease across these key premium and luxury wine sales channels that we are well-placed to execute our plans to deliver growth.”
In lieu of these channels being open, online and e-commerce sales have somewhat filled the gap, he said, but noted that growth rates were down last year.
Shares fell 5.4 percent to $11.63 on the back of the warning. Shareholders had previously been impressed by Treasury’s resilience through both the pandemic and shock Chinese tariffs on its wine. Analysts at UBS recently put a ‘buy’ rating on the stock, saying it was well-placed to benefit from COVID reopenings.
“In lieu of these channels being open, online and e-commerce sales have somewhat filled the gap, he said, but noted that growth rates were down last year.”
Treasury has also seen, like many other retailers, significant disruption to its supply chain and logistics systems due to the pandemic. Mr. Ford said shipping delays and container availability issues were becoming “more pronounced” and that he expected the challenges would be ongoing.
However, the company’s underlying performance in its key regions was solid for the first quarter, with sales in Asia, excluding China, growing 18 percent for the three months to the end of August. Sales at the company’s US divisions grew 3 percent for the three months to September 19 against a broader industry decline of 5 percent.
“Globally, our underlying business is performing in line with expectations, however, the pandemic-related factors will continue to have a bearing on our performance in the short term,” Mr. Ford said.
Sales of its premium Penfolds range have also remained consistent, with Mr. Ford saying the company had successfully reallocated all the sales it lost after China, Treasury’s largest market, unexpectedly slapped tariffs of up to 200 percent on Australian wine.
In his address to shareholders, chairman Paul Rayner said the company remained committed to the Chinese market in the long term despite its “effective closure” in 2019, and appeared to call on the Australian government to do more to repair its frayed relationship with the country.
“Trust is critical to building relationships and brands and is therefore essential to our long-term success,” he said. “I think this will be particularly important in the post-COVID world, as governments consider how they stimulate domestic economic recovery and the role of international trade relationships in driving economic growth.
Questions & Answers
Q.What specific markets are most affected by the pandemic's impact on wine sales?
What specific markets are most affected by the pandemic's impact on wine sales?
The company's key luxury channels in America, Australia, and Asia are experiencing delays in recovery due to COVID-19. Lockdowns in Sydney and Melbourne have specifically closed the on-premise channel, impacting execution plans outside large retailers.
Q.How are supply chain issues affecting Treasury Wine Estates?
How are supply chain issues affecting Treasury Wine Estates?
Treasury Wine Estates is facing significant disruption to its supply chain and logistics systems. Shipping delays and issues with container availability are becoming more pronounced and are expected to continue to be challenging for the company.
Q.Despite market challenges, what areas of the business are performing well?
Despite market challenges, what areas of the business are performing well?
Underlying performance in key regions has been solid, with sales in Asia (excluding China) growing 18 percent for three months. US divisions saw sales increase by 3 percent against a broader industry decline. Premium Penfolds sales have also remained consistent.
Q.What is the company's long-term view on the Chinese market?
What is the company's long-term view on the Chinese market?
The company remains committed to the Chinese market in the long term, despite its effective closure in 2019 due to tariffs. The chairman suggested the Australian government should do more to repair its relationship with China for future success.
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