Ladies and gentlemen, thank you for standing by. Welcome to today's Q3 Fiscal Year 2019 Sales Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I must advise you the conference today is being recorded on Thursday, April 18, 2019. Without any further delay, I would like to hand the conference over to your first speaker today, Julia Massies. Please go ahead.
Good morning, ladies and gentlemen, thank you for joining us this morning for Pernod Ricard's Q3 Fiscal 2019 Conference Call. We're hosted this morning by Hélène de Tissot, our Finance, Operations and IT Director, who will take you through a brief presentation and then open the floor to your questions. Hélène, over to you.
Thank you, Julia. Good morning, everyone. Let's start with our Q3 net sales performance. A very strong and diversified year-to-date growth. We are delivering an organic year-to-date sales performance growth of +6.3%, this is driven by emerging markets growing by 15%. If we start with Americas, +3% with a good performance there. The U.S.A. are broadly in line with markets, and I'm talking about the underlying rate here because we have some start of the wholesaler inventory optimization, which is happening in Q3 already. I'll come back to that. Asia, rest of the world, +12%. This is a very strong performance, obviously our two key markets that are China and India are strongly contributing to that performance. Europe, +1%. Very good sales in Eastern Europe and a contrasted performance in Western Europe.
Q3 has delivered a +2.5% growth, which is fully in line with our expectation. This is mainly due to some technical factors I will come back to. Americas, +2%, improving performance in Latin America. As I mentioned for the year-to-date, shipments in the U.S. that are reflecting the start of this wholesaler inventory optimization. Asia, rest of the world, +3%. This is, as I mentioned, in line with our expectation, with a very significant impact here of earlier Chinese New Year and sustainable growth management of Martell. We had some route to market change in Korea impacting Q3. Europe, +2% with some improvement there, driven by a very strong performance in Russia and as well U.K. in Q3, despite some commercial disputes impacting us in Western Europe, especially in France and Germany.
Moving to the next slide, you have here all the figures. Net sales figures of EUR 7 billion, 188 million, +6.3%, as I mentioned, in terms of organic growth and +4.9% reported growth. If we look at the performance across our markets, mature markets stable and emerging markets, as I mentioned, growing by 15%. Diversified growth as well in terms of brands, which obviously is a key part of our strategy. You have here the key figures for our category, strategic international brands, +8%, strategic local brands, +10%, specialty brands, +14%, and strategic wine, -5%. I move to the next slide. Here you have all the figures, the organic growth figures I mentioned for both year-to-date and Q3.
Some non-significant perimeter impact and FX impact, negative for the year-to-date, EUR 70 million negative FX impact despite a positive impact of U.S. dollar. There is some negative impact coming from the emerging market currency that you have on that slide. For Q3, the figure is positive in terms of FX, and this is mainly driven by the positive impact of the U.S. dollar. If I move to the next slide, sales growth by region. As usual, we show on that slide as well the performance for the full year, last year and the comparable basis of the nine months the previous year. Americas, +3%, as I mentioned, with again, this clarification in the U.S., we are broadly in line with the market and there's the start of the wholesaler inventory optimization, which is impacting us in this Q3. Asia, rest of the world, +12%.
You see here the acceleration versus the previous period, very dynamic growth thanks to China and India. We'll look at the figures for China and India, they are very strong. Despite the route to market change in Korea, which is impacting us in the Q3 and in the year-to-date. Europe, +1%. As I mentioned, strong momentum in Eastern Europe and Russia is in strong double-digit and contrasted performance in Western Europe. You have then the percentage of sales across the region as a reminder. If I move to the next slide, which is showing a performance by brand, by category of brands. As I mentioned, a very good performance, strong and diversified, as you can see on that slide with strategic international brands accelerating.
This +8% for the nine months, and this is driven by Martell, Jameson, our Scotch brands, Beefeater and Perrier-Jouët. We have as well very strong price mix contributing to that performance. Strategic local brands +10% acceleration as well on this category. This is obviously as well, largely due to the very strong performance and underlying fundamentals of our single malt whiskies, Indian single malt whiskies. Specialty brands +14% as well. Very good performance here. In particular, thanks to Lillet growth, but as well, Monkey 47, Redbreast, and Olmeca Altos. Strategic wines, -5% with a return to growth in Q3. This is mainly due to a great performance of the Campo Viejo and Kenwood.
I take the opportunity of that call and of that slide to happily announce the signing of an agreement almost, let's say, a few hours ago, for the acquisition of this super-premium Italian gin, Malfy. We are very happy to welcome that new brand in our portfolio. If I move to the next slide. Let's deep dive into Americas first. Plus 3% year to date, with the U.S. at +2% with sellouts broadly in line with the market. You can see here the estimation we have on the market trend, +4.5%. If we deep dive into the brands, Jameson, continuation of a very strong performance. We are rebalancing our investment strategy throughout the year, to be less reliant on St. Patrick's Day. Absolut is in decline in the difficult category.
There are a few important things about to happen in the coming days and months on Absolut. The launch of Planet Earth's Favorite Vodka in the coming days. It is a great campaign, we believe. The launch of Absolut Juice, which is an innovation in Q4. Our growth relays are growing double digits. This is the case for Martell, Avión, Altos, and The Glenlivet Founder's Reserve. Dynamism of our specialty brands with, as you know, the new brand venture division, which is in charge of that category. In particular, we have a very good performance of Monkey 47, Smooth Ambler, and Del Maguey. That are three brands that we bought in the recent past. Q3 shipments, reflecting this finished good inventory optimization at wholesalers level. As announced in February, we are putting in place that optimization to deliver operational efficiency.
We expect this optimization to have an impact close to two weeks for the H2. Sorry. Canada. Good diversified growth with double-digit performance for Absolut, following the launch of that campaign, Planet Earth favored vodka that we did, if I remember well, back in October. Travel retail America growth driven by strategic international brands, and in particular, our blended Scotch malt and Martell. Latin America growing by 6% with a strong growth in Brazil, especially on Beefeater and Scotch. Mexico back to growth in Q3 with good performance of Passport and Absolut. Moving to Asia, rest of the world, +12% on a year to date basis. This is a very dynamic growth, which we continue to deliver in that part of the world. China up +21%. Very strong Chinese New Year.
Martell momentum obviously continuing and contributing very significantly to that great performance with very strong growth across all segments. 5% price increase has been announced early February. Q4 should reflect the inventory management of Martell, which as you know we are continuously monitoring to support growth sustainability. Chivas in continuing growth, this is thanks to the successful relaunch campaign we did in 2017, at the end of 2017. Premium brands continuing with a very strong performance, this is definitely the case for Absolut and Jacob's Creek. We did announce as well a few days ago, the conclusion of a distribution agreement with Domaines Barons de Rothschild, which will start in early fiscal year 2020. India, +19%. Very strong growth in India.
This is true for the whole portfolio, meaning the single malt Indian whiskeys, but as well the international spirits portfolio and Jacob's Creek, performing very well in India. Korea, double-digit decline, and this is mainly due to the destocking of Imperial that happened in Q3, ahead of the change of route to market. Knowing that we are starting 1st of April with Drinks International, which is now the distributor of Imperial in Korea. We had as well some impact on our strategic international brands portfolio in Q3, linked to the restructuring organizational changes that we put in place in our market company in Korea in Q3. Travel retail Asia growth driven by Martell, The Glenlivet blended whiskey, and our champagne, Perrier-Jouët.
Africa and Middle East, double-digit growth thanks to Beefeater, Scotch, Absolut, and Jameson, and with a very strong performance in Turkey, with good volume growth, very strong pricing and mix. If I move to Europe, +1% year-to-date. Strong momentum in Eastern Europe and contrasted performance in Western Europe. France, -3%, We had a commercial dispute in Q3 impacting our performance. Ricard year-to-date basis is in growth, and we have some great dynamism for growth relays that are Absolut, Beefeater, The Glenlivet, and Lillet. It's still difficult on the whiskey category. We have as well the impact of the new EGalim law, which came into force early February, which is likely to impact our sales negatively from Q4. Spain in a modest decline with a continued good performance of Seagram's gins, but we have some pressure on Ballantine's and Beefeater.
Germany decline driven by a commercial dispute as well, impacting Q3, Lillet continuing to perform strongly. U.K., double-digit sellout for spirits, very strong performance there. This is especially true with the performance we are delivering with Beefeater and the gin category, but as well, Jameson, Chivas, and Absolut. We still have a slight decline year-to-date in the U.K. driven by our value strategy on the wine portfolio. U.K. is back to growth in Q3, with as well a strong rebound of Campo Viejo of Spanish wine in this period. Travel retail Europe, good performance, thanks to our strategic international brands, and in particular, the whiskey portfolio and Beefeater. Russia, as I mentioned in my introduction, very good performance there, +13%, very strong across the portfolio, most notably thanks to Ballantine's, Jameson, Ararat, and Absolut.
If I move now to the final slide of that presentation for the conclusion and outlook. Conclusion, as I started, we have a very strong and diversified year-to-date sales performance. In that context for the full-year environment, which remain uncertain, we believe we can expect this good diversified growth to continue with the continuity of the management of Martell sustainable growth and the full execution of the U.S. wholesalers inventory optimization. The good price mix should continue as well. As announced in February, we are confirming the completion of the 2016-2020 operational excellence roadmap, EUR 200 million savings P&L to be fully completed by the end of the year, meaning one year ahead of our initial plan.
At the same time, we will continue to invest in A&P and as well continue to invest and build strong strategic inventory and invest in our CapEx to ensure a sustainable long-term growth, which is obviously our core strategy. We're going to deliver circa 50 basis points organic improvements in our profit from recurring operation. We estimate, at that time of the year, the FX impact to be positive and around EUR 20 million on the profit for recurring operation. In that context, we are increasing our guidance for the full year, and we believe that the organic growth in our profit from recurring operation should be circa +8%.
Thank you very much, Hélène. We will now turn to your questions, please.
Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, you can press the hash key, but once again, that is star one if you wish to ask a question. We do have the first question from the line of Fernando Ferreira from Bank of America. Your line is open. Please go ahead.
Morning, Hélène and Julia. Thanks for the questions. I have a few questions on your U.S. business, please. The first one, when we look at the scanner data from Nielsen, we've seen the first decline for Jameson in March, for a very long time. We understand that monthly data can be volatile, but can you discuss maybe some of the reasons behind the slowdown? Was it due to pricing that you've taken on the brand or perhaps increased competition that you're seeing on the Irish whiskey category? Also, if you can remind us what are your growth aspirations for Jameson, given the larger size of the brand now? That would be good. Then lastly, on the distribution changes, is it fair to say that the loss of shipments in Q4 will be similar to the one we saw in Q3?
Okay. Thank you for your question. I'm sure you are referring to the four weeks Nielsen data that show a -3% trend for Jameson. As you mentioned, obviously, this is only a four weeks period. The 52-weeks period, just as a reminder, is reflecting a +9% trend in value for Jameson, which we believe is much more the right, let's say, reflection of our brand underlying performance, meaning strong growth. I will start by answering the second part of the question, which is what is our ambition for Jameson? No change. Our ambition is double-digit growth. Back to your question on this four weeks period. There are different things happening there, but I would like to clarify first that we believe that Jameson had a good performance in that month, and especially around St. Patrick's Day. What do I mean by good performance?
I mean gaining market share. Let me give you a bit more insight on that, because there are different things that probably need to be clarified. First, this year, St. Patrick's Day happened to be on a Sunday, that is a Saturday last year. This is already something that could explain part of the different figures here. We were as well, the previous year, launching Caskmates IPA during the same month. We had a, let's say, high comparable basis. Back to my initial point, which is about gaining market share. We believe that Jameson has a market share, let's say, around 20% on an annual basis. This year, Jameson gained market share during these four weeks period, probably up to 26% market share. The previous year, this market share gain was even stronger, getting to probably something close to 29%.
There is this, let's say, comparable basis. Good performance again, because on the basis of a strong market share position, Jameson managed to gain additional market share during these four weeks, but a bit less than the year before. I think from a strategic point of view, it's fair to say that we believe, and that's what we mentioned in the core of the presentation, that Jameson needs to perform, obviously, during the full year and with probably less emphasis on this specific event that is St. Patrick's Day. We've been, I believe, quite consistent with that strategy in term of reduction of promotional intensity and as well in term of pricing position. Just to give you as well some additional information on that. The average price of Jameson during this four weeks period increased by 2.6%.
We are rebalancing our investment strategy to sustain the strong growth of Jameson during the whole year, with less emphasis on the St. Patrick's Day event. Even with this rebalancing, Jameson managed to gain significant market share during that month. I think your second question was on the wholesalers inventory optimization.
Yeah.
As I mentioned, we have already an impact of this optimization in Q3. Just to illustrate that, the net sales performance of the U.S. market was stable in Q3, which obviously is due to the start of this optimization. As I mentioned as well, we believe that this optimization should more or less represent two weeks of sales. Our objective is to implement the full optimization by June 19, knowing obviously that execution is key in that exercise, we want to avoid disruption and out-of-stock situations. We're going to keep working on making that optimization as complete and as efficient by the end of June.
That's great. Thanks, Hélène.
You're welcome.
Thank you. Your next question comes from the line of Sanjeet Aujla from Credit Suisse. Your line is open. Please go ahead.
Hi, Hélène. A couple of questions from me, please. Firstly, on Korea, are you able to quantify the impact from the de-stocking in Q3? What's the breakdown of your portfolio there between Imperial and the strategic international brands? Secondly, can you just provide an update on the commercial disputes across a few of your European markets as we go into the summer selling period? Is there any signs of that situation improving? Finally on India, do you anticipate any disruption during the election period there? Thanks.
Okay. Thank you. I start with Korea. As you know, we rented the distribution rights of Imperial to a third party starting early April. That's why we had some de-stocking in Q3. That's why we have some double-digit decline in our Q3 numbers. We expect this double-digit decline to be as well impacting us from Q4 until H1 of next year because of the change of go-to market compared to the previous situation. In term of weight of Imperial in our total portfolio in Korea, it's probably 50% of our portfolio there. As you know, the strategy we have now is really to focus on the strategic international brands. We did restructure the company significantly to reflect that strategy. Your second question was on the commercial dispute.
Let's move then to Western Europe, because this commercial dispute impacted us in France and Germany. In both markets, we are re-engaging with our customers in Q4, the situation will progressively normalize during Q4. Your last question was on India. India, as I mentioned in the core presentation, very strong performance there. Q3 was a bit lower just because of the very high comparable basis last year. The underlying trend is very strong and we don't expect a significant disruption from the general election. We remain very confident with the performance of India.
Very thanks.
Thank you. The next question comes from the line of Olivier Nicolai from Morgan Stanley. Your line is open. Please go ahead.
Hi. Good morning, Hélène, Julia. Just three quick questions, please. First of all, Lillet is doing very well in Germany, also in France. Is there any plan to roll out the brand in the rest of Europe and also perhaps in the U.S.? In Spain, I understand that Ballantine's is under pressure since the Scotch category is quite weak. Can you explain why, what's happening with Beefeater, why it is under pressure, and if you are losing share overall in the gin category? Just lastly, on China, could you please give perhaps a bit more detail on the strategic rationale of the partnership you signed with Rothschild regarding the distribution of some of their wines? Thank you.
Olivier, can I just clarify your second question, because you asked about What was the question on Spain?
Essentially, it's Spain. I was trying to understand what was going on with the Beefeater brand, why it was under pressure, and if you are losing share in the gin category in Spain.
Okay. I start with your question on Lillet first. As you rightly highlighted, we have a very strong performance of Lillet in Germany, and this is largely due to a fantastic job done by our affiliate there. The moments of aperitif is booming and Lillet is performing extremely well. This is as well a very performing brand in France. As you rightly mentioned, we have the ambition to leverage that success in other markets. Just to give you an example, I think there's already a great ambition for that brand in the U.S. Lillet is one of our big bets. That this is a great innovation and we have lots of ambition for that brand, leveraging the success I just highlight in Germany and France. I'll move to China. I'll come back to Spain afterwards.
We did announce a few days ago, this partnership with Domaines Barons de Rothschild. We're very happy to have that partnership. It's going to start probably very early in our next fiscal year. In term of strategy, this is really, for us, very relevant to reinforce our leadership amongst the international players in very key segments or moments of consumption or channels that are meal occasion and e-commerce. This is really what is at stake here. If I come back to Spain. Spain, well, I think first, the difficulty you mentioned, it's really linked to as well, the market, the pressure that we have on pricing, but as well by competitors. Coming back to the whiskey, that's exactly what is at stake. In term of gin, it's true that we are a bit struggling there.
We did launch Beefeater Pink last year, and we're going to reinforce our investments in Q4 on both Beefeater and Seagram's gin.
Perfect.
In term of market, and back to your question on market share, it's probably fair to say that we are stabilizing our market share in Spain in the last few months.
Thank you very much.
My comment on the market share is more a kind of a global comment. For the gin specifically, if I understand well your question, which was about gin, we are even doing better than the category. That's obviously a very positive thing. The new media campaign that we're going to launch in Q4 are probably going to reinforce that trend.
Thank you. The next question comes from the line of Nico von Stackelberg from Liberum. Your line is open. Please go ahead.
Hello. Yes, with the Malfy acquisition, I think it's time to take stock of how you approach deals. I was just wondering, how do you look at the deal in terms of how many years it will take to cover your cost of capital? If there's other sort of relevant metrics for how you approach the valuation process on acquisitions. Please could you elaborate? The next question is on France with the EGalim. Can you discuss if this has any impact on profits? I understand a lot of it is linked to promotions. Could you discuss the profit impact for this? Thank you.
Good morning. I start with your first question on Malfy. This is obviously very consistent with our strategy in terms of active portfolio management. We've been looking at buying and integrating very nice brands for many years already. If I understand correctly, your question is in term of criteria for selecting those brands and value proposal assessment. On this, it's very clear what we are looking for are brands with already a kind of good growth trajectory with strong potential. Where we believe that for a reason that can be specific to the respective brands, the integration of those brands into the Pernod Ricard family and distribution network and with the expertise and resources that we can bring and put behind those brands, will create a significant value for our shareholders. Obviously it's a question of a strong business plan.
What are our assumption in term of growth and profitability of those brands once they join the Pernod Ricard portfolio. We are assessing the value creation using this business plan. The valuation coming from a very basic DCF computation, and being sure that we have a very significant room for value creation. That could be Malfy specific, because I think that's quite nice for me to have the opportunity on that call to come back to that acquisition, which happened a few hours ago in term of signing the agreement. This is a super premium Italian gin, with a very nice variance and a strong price positioning. We've already some significant growth, we are very happy to welcome Malfy into our family. The second question was on EGalim. Just to mention, because I'm not sure of what you said around promotion.
EGalim, to clarify, is the Loi d' orientation des politiques publiques d' alimentation, which was voted back in November, and which came into force in February. Which is, let's say, forcing retailers to increase prices to stop selling at loss. This is not changing, sorry, our prices, but this is changing the retail selling price. The reason why we mention this as a potentially negatively impacting our Q4 is that, because of technicalities, this additional market is based on the price including tax and duties. There has been a significant increase, for instance, on Ricard starting last February, which had a 10% increase. The 1-liter price is above EUR 20, which is, on top of that, a psychological threshold, let's say. This could have a negative impact in term of net sales. I'm not going to quantify it. It's a risk for the coming months.
Can I just go back to the first question on the M&A? If you're using DCF, could you share the cost of capital that you used for the calculation and suppose rough growth metrics you've used for this brand, I guess, on a 5-year CAGR?
I'm sorry. I cannot go into that specifics. As I said, we are very happy and we believe this is going to create value.
Okay. Actually one last one, if I can just chime in. For China, can you give us your nine-month to date volume for Martell that you've sold? Basically trying to back into your Q4 growth rate.
Well, in terms of year to date performance, the current run rate is double digits. You know that globally, not only for China, but globally, our medium-term strategy for Martell is high single digits. This is a midterm ambition. We could have slightly more than this for one year or the other. Again, the ambition is as well to internationalize Martell outside of China.
Thank you.
no change in term of growth sustainability for Martell.
Okay, thanks.
Thank you.
Thank you. The next question comes from the line of Chris Pitcher from Redburn. Your line is open. Please go ahead.
Thank you very much. A couple of questions. Are you able to give a bit more detail on the growth achieved in travel retail Asia, which is obviously an important part? You didn't give a specific number. If not, can you give us a feel for what your global travel retail business is doing in terms of sales growth? Secondly, on the recently proposed U.S. tariffs, which hit champagne and cognac, have you seen any stock buildings yet ahead of a potential tariff increase in these categories yet, or is it still very much waiting to see what goes ahead with that? Thank you.
Thank you. I'll start by the second question, because I think you're answering it in your question. It's much too early. Nothing to comment at that stage. As you know, there could be many things happening in the coming weeks on that matter. We didn't see anything happening in terms of stock buildup, we'll keep monitoring the situation, obviously. Back to travel retail. Your question was on travel retail Asia. As I mentioned across the presentation anyway, travel retail is performing well in each geography. To be more specific with your question, it's let's say between mid-single and high single digits in terms of year-to-date net sales performance for travel retail in Asia.
Thank you very much. If you have one quick follow-up. In the U.S., you're still talking about Glenlivet Founder's Reserve. Do you have enough stock yet to push the classic Glenlivet 12 yet? Or are you still very much building stocks for that brand?
We have sufficient stock. I would maybe just modify the word you used, pushing, because that's not our strategy. It's not a push strategy, but I'm sure your question was more to say, can we supply what we need as well for the Glenlivet 12? The answer is yes.
Thank you.
Thank you. The next question comes from the line of Andrea Pistacchi from Deutsche Bank. Your line is open. Please go ahead.
Yes. Thank you. I have a few very brief questions, please. Firstly, going back to Korea, if you could possibly say how much Korea was down in Q3. You said that because of the changes to route to market, obviously this will impact your sales until, well, for a year as you, I think, capture less of the value chain. Does this, however, also mean that you should have a positive impact on margin because the margin through the distributor will be higher? On Europe, whether there has been any impact from either stock build or shipment phasing around Brexit, either wine into the U.K. or maybe Scotch into Europe. Finally, please, on Brazil, where you had a strong performance. Is this a function of comps, of phasing, or are you seeing a more fundamental improvement there?
Okay. Thank you very much. I'll start with Korea. As you rightly mentioned, we're going to have probably a kind of different shape of our profitability there moving forward since we granted those distribution rights. Our sales moving forward will be, let's say, reflecting the significantly lower selling price, which is the one we're going to have to these new distributors. We're going to have as well some income linked to the use of the intellectual property rights, the use of the Imperial name. That's what's going to happen. That's why we're going to have a significant decline in terms of top line, because of this lower selling price to distributor, but as well, some income coming from these royalty flows. Your question on margin is very relevant.
We should have a better margin because on top of that, as I mentioned, we did restructure our organization there to adapt the size of our teams to the new focus on strategic international brands. Your second question on Brexit. On Brexit, we did have some safety inventory buildup, but this is more for intra-group finished good inventory. Nothing to comment on this in terms of net sales performance. This was, again, more to try to limit business disruption by having some finished good stock into our markets. Your last question was on Brazil. Brazil
Yep
It's not a question of technicalities in terms of comparable basis. We are gaining market share, especially on strategic international brands and with a fast growth in standard Scotch. That's why I was mentioning Passport a bit earlier in the morning and with as well some price increase on Chivas.
Thank you.
Thank you, Andrea. We'll take our two final callers, please. Absolutely. The next question comes from the line of Laurence Whyatt from Barclays. Your line is open. Please go ahead.
Good morning, Hélène and Julia. Three from me, if that's okay. On the inventory optimization in the U.S., could you give some detail about which brands in particular are going to be affected? Is that largely hitting your larger brands or some of your growth relays also going to be impacted there? Secondly, on the Absolut brand, I see you've launched the Absolut Juice line. It's been a very big success for your nearest competitor on one of their vodka lines. If you manage to get Absolut back to flatlining, would that be a good result for you? Finally, on your whiskey brands in China, you mentioned that Chivas is continuing its growth. Could you comment, please, on how Ballantine's and Royal Salute are doing in the Chinese market, please? Thank you.
I'll start with the U.S. Inventory optimization question on how it's going to impact the different brands. I'm not going to give you details brand by brand, because it's going to vary, obviously, depending on each brand position, knowing, as I mentioned before, that the execution of the optimization is key, and we want to avoid disruption and out of stock. Obviously we will keep monitoring the execution of this optimization brand by brand. It's fair to say that it's going to definitely impact our larger brands. Probably not only those brands, but as well some other growth relays. We are really going to do that, and we are already doing it in a very, let's say, agreed approach with our wholesalers. Question on Absolut.
What I would like to say is that first, as I mentioned before, we believe Absolut Juice is a great innovation, and we launched it in the U.K. last year, and this has been quite successful. We'll see what's going to happen in the U.S., but we have confidence that this is a great innovation there. Back to your question, in term of strategy, as you rightly mentioned, our ambition is to stabilize Absolut in the U.S., and innovation is going to contribute to that objective. Your last question was on the whiskey brands performance in China. I'm happy to confirm that both Ballantine's and Royal Salute are performing strongly double digits in term of editions.
Excellent. Thank you very much.
You're welcome.
Thank you. The last question for today comes from the line of Trevor Stirling from Bernstein. Your line is open. Please go ahead.
Good morning, Hélène and Julia. Two questions my side, please. The first one, Hélène, could you just give us a little bit more background to the U.S. de-stocking and why you're doing this de-stocking? Is it because you had a slow but steady stock buildup in distributors and then you are correcting it, or are you changing the way you're working with the distributors? The second question, you increased, or rather you tightened the range of guidance from 6-8 to around 8. In terms of what lay behind that, was it increased confidence on sales or increased confidence on margin?
Okay. Maybe I'm going to ask you to just rephrase the second question because the sound was not so great. Can you please repeat?
Yes. Hélène, you tightened the range of guidance from six to eight
Yeah
to around 8%. I'm just asking what lay behind that. Was it more confidence in terms of achieving your sales numbers, or was it more confidence in terms of margin performance?
Maybe I'll start with this one. Thank you for repeating. It's definitely both. It's confidence in our top-line performance. Obviously, this confidence is supported by the strong year-to-date performance that I just commented. As well, confidence that with the optimization strategy, the operational excellence initiative that would be completed by the end of June, our strong A&P investment, and strict discipline on structural costs, we're going to be able to improve the margin to the extent that we mentioned, which is roughly 50 basis points. Back to your question on the U.S. We discussed that a few weeks ago. This is really happening in the context of a renewal of our contracts with our wholesalers. We believe this is a great thing to do than to be able to implement those operational efficiency initiative at their level through this optimization of finished goods inventory.
We have obviously some good counterparts in terms of brand activation behind our top priorities from the wholesalers. That's exactly why we are putting that in place.
Great. Thank you very much, Hélène.
You're welcome.
Thank you very much, ladies and gentlemen. Thank you very much, Hélène. That closes our call for this morning. Thank you and have a good day.
Thank you. Bye-bye.
Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.