By Stephen Wilmot
Global liquor companies can't completely make up for lost bar sales through Zoom cocktail parties.
Pernod Ricard, which distills Jameson whiskey and Absolut vodka as well as its namesake French aperitif brands, on Wednesday reported a 12% decline in recurring profits for its financial year through 30 June. Like its British rival Diageo, the Paris-based company had a solid start followed by a collapse in sales as the pandemic closed big distribution channels such as bars and airport stores.
The compensating factor was a surge in grocery-store sales as consumers restocked their liquor cabinets. On a call with analysts, Chief Executive Alexandre Ricard, scion of the family that still owns roughly 16% of the company, said lockdown rituals of Zoom drinks and WhatsApp parties were among the "new opportunities" that had emerged this year.
Store-based or online liquor sales have been particularly strong in the U.S., but even there the compensation is only partial, with sales growth at the industry level still tracking below the roughly 4.5% level Pernod expected before the pandemic. The other problem for liquor companies is that Americans are buying more of their liquor in superstores, where it earns a lower margin on sales, as they try to avoid multiple shopping trips.
That means the big question for Pernod, as for so much of the corporate economy, is when the world gets back to normal. The company was unwilling to hazard a guess, giving no guidance for the financial year it has just started. Mr. Ricard expects travel retail to remain depressed and the mainstream retail channel to remain strong, implying little change to the status quo.
Pernod shares are down 9% this year, but on 25 times prospective earnings -- the highest in at least 30 years -- they don't look like a bargain given the vast uncertainties around the recovery. These include not just how long it will take for consumers to return to bars and airports, but also whether a recession will make them more cautious about buying $30 bottles of alcohol as the novelty of boozing in front of a computer screen wears off.
Investors who see the correction as an opportunity to buy into a well-run company with some excellent brands need to take the long view. Pernod, whose hard-to-translate corporate tagline is "créateurs de convivialité," is much better off than its clients in the hospitality industry. To thrive, though, it too needs more convivial times.
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