Pernod Ricard Faces Hurdles as U.S. and China Demand Falls Short

French spirits giant Pernod Ricard announced on Thursday that it expects sales to remain sluggish this quarter due to continued inventory reduction in the United States and weak demand in China.

For the fourth fiscal quarter, the company's organic sales grew 3% to €2.66 billion ($2.96 billion), slightly below analysts' expectations. This underperformance is primarily attributed to U.S. retailers continuing to draw down their inventories.

In the aftermath of the pandemic boom, Pernod Ricard and other premium spirits manufacturers have been grappling with sluggish demand, a slowdown lasting longer than some producers had anticipated. Pernod Ricard maintained its mid-term financial growth expectations of 4% to 7%, aiming for the upper end of this range. Their organic operating leverage target is set at 50 to 60 basis points.

Pernod Ricard indicated that for the full fiscal year, organic net sales fell by approximately 1%, with U.S. sales plunging by 9%. The company projects that the ongoing high-interest-rate environment and further adjustments in store inventories will lead to a further decline in sales for the first quarter of the current fiscal year.

The company's performance fell short of market expectations, with fourth-quarter sales reaching €2.66 billion against a forecast of €2.74 billion. The organic sales growth of 3% in the fourth quarter was also slightly below the expected 3.24%. The full-year dividend per share stood at €4.70, higher than the market's expectation of €4.43.

Pernod Ricard's bearish outlook reflects broader challenges within the high-end spirits market. The ongoing inventory adjustments and the sluggish demand in key markets like the U.S. and China have affected many industry players. This environment poses long-term profitability challenges, pressuring companies to reconsider their growth strategies.

As the company navigates these turbulent times, achieving its growth targets might require more substantial market adjustments and strategic shifts to adapt to changing consumer behaviors and economic conditions.