Good morning, everyone, and thank you for joining our Q1 FY 2027 sales call. I am joined today by Mauve Croizat, our EVP, Finance and Tech. Unless specified otherwise, all sales growth rates are organic. Mauve, over to you.
Thank you, Joëlle. Good morning, everyone. Very happy to be with you this morning. I trust you have all received the press release this morning, so I am just going to read through it relatively quickly to leave time for the Q&A. We are reporting net sales of -1%, a sequential improvement on Q4 last year despite a mixed environment, which is consistent with our full-year expectation and broadly stable organic net sales. Volumes in Q1 are back to growth at +6%, with strategic international brand volumes growing +2%. Sales in the U.S. declined by -10% and in China by -25%, with both markets being impacted by inventory adjustments as expected. The underlying depletion in China are return to growth, confirming the cautious trade optimism ahead of the Mid-Autumn Festival as flagged during our full-year communication.
Excluding the U.S. and China, rest of world sales grew by +4%, with strong performance across a number of Asia rest-of-world markets. India was a particular highlight, with sales up +19%. We report softer results in Europe and in Latin America. The global environment remains volatile and uncertain, with ongoing conflict and cost of living pressures in some markets. At the same time, sales momentum is improving in a number of markets, demonstrating the benefits of our diverse portfolio and our geographic footprint, as well as our ability to adapt quickly to changing market conditions. Let me start with our number one market, the U.S., where sales were down -10%. Market trends have slightly improved over the summer. The total spirits market has declined by circa -2% and bottled spirits by circa 4%.
As highlighting, the consumer sentiment remains low, with affordability a particular issue for some consumers. Our sell-out in Q1 is at circa -6%, and our gap to market continues at circa 2 points. The difference between sales down -10% and sell-outs down -6% reflects the impact of inventory adjustments. Looking at our brands, Jameson and Kahlúa sell-outs are performing ahead of their respective competitive sets. We are also seeing a marked improvement in Skrewball and a strong rebound in Malibu, benefiting from the success of Malibu Pink. Sales are supported by our Q1 innovations, including small formats for Malibu Coconut and Pink, as well as Skrewball Peanut Butter & Jelly. Jameson Distiller's Batch is also extending the Jameson Irish whiskey portfolio. These launches build on the innovation we already introduced last year. Ahead of the important holiday period, we have a strong campaign program across the portfolio.
We are particularly excited about the significant initiative of Jameson with the NFL sponsorship, which kicked off in September and will be supported by a full 360 campaign throughout the NFL season with a key activation peak during the OND period. In India, we report sales growth of +19%. The market continues to enjoy dynamic consumer fundamentals, and sales are driven by strong consumer demand, as well as the continuation of the premiumization trend. Underlying sales grew in the high single-digit range with an additional benefit from the Maharashtra comparison base and from pipe fill effects linked to preparatory steps for a potential IPO. For clarity, I remind that the decision to proceed with an IPO remains subject to a board approval. In China, sales declined by -25%. This is mainly driven by trade inventory adjustments as underlying depletion returned to growth in the quarter.
This is a significant improvement from last year's sharp decline and confirms the cautious trade optimism we mentioned at the start of the summer. For Martell, we have seen a return to growth in our off-trade depletion with a successful Mid-Autumn Festival campaign that has been driving consumer and trade engagement. In the on-trade, we are lapping the regulatory crackdown, which gives a more favorable base. However, the channel continues to be under pressure, leading to decline there. Underlying trends for the rest of the portfolio remains resilient overall, notably supported by a strong performance of The Glenlivet, Royal Salute, and premium brands such as Jameson and Olmeca. If I turn to global travel retails, sales were down -4%. Overall, global travel numbers remain strong, but sales have been impacted by the ongoing Middle East conflict, and this has particularly affected some of the Asian travel retail market.
In the meantime, Europe travel retail delivered strong growth. In other markets, we report good growth in Asia, rest of world, largely driven by Japan, which continues its dynamism. Korea and Taiwan both returning to solid growth, and Turkey's continued good momentum. Europe had a soft start to the year, reflecting phasing in some markets and continued pressure in the on trade. In Western Europe, sales declined in France and Spain, with a persisting sharper decline in Germany. Eastern Europe was also soft, with Poland impacted by ongoing customer negotiation. In the Americas, sales declined in Brazil due to phasing, and in Mexico, with continued weak consumer demand. In North America, Canada saw also a modest decline.
As it relates to what our full year and medium term outlook, the full wording is in this morning press release, but the key message is that we are confirming our guidance, including broadly stable sales in a contrasted and volatile environment, and we strongly defend organic operating margin, supported by strict cost control and the acceleration of our operational efficiency program. In conclusion, Q1 sales were mixed, but improved significant sequentially with encouraging momentum in a number of key markets, notably in Asia. In China, underlying sales have returned to growth. Our broad geographic footprint and diversified portfolio provide clear source of resilience in this volatile environment. At the same time, we continue to adapt our brands, our activation to the evolving consumer trends and occasions. Thank you for your attention. That concludes my prepared remarks. I will now be happy to take on your questions.
Thank you very much, Mauve. Operator, we can open the line for questions. We welcome please two questions each as usual. Thank you.
Thank you. This is the conference operator. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Andrea Pistacchi, Bank of America.
Yeah. Good morning, Mauve and Joëlle. My first question is on China, please. You confirmed the cautious optimism in the trade ahead of Mid-Autumn Festival and your positive depletions. This is clearly very encouraging, but it is in contrast to what other companies, particularly in luxury, are saying and what they've reported so far in the quarter. What do you think is underpinning this more positive sentiment? Is it the comps, the lapping the crackdown or maybe something else? I do not know whether you have much visibility yet on Mid-Autumn Festival sell-out, but how do you feel therefore about China as we head towards CNY and for the full year? My second question please is on the very strong performance in Asia rest of world when you exclude both China and India.
I calculate that ex China and India, the region was up probably something like mid to high teens, which is a material acceleration from last year. I know there's many different countries there, and I think you called out good performance in a few Japan, Korea, Taiwan. Could you provide a bit more color on this strong performance and whether you're confident that this positive momentum, I mean, not quite at this level, but the positive momentum in the region can continue? Thank you.
Thank you for the question. I will start with China. Indeed, we are very glad to see our depletion return to growth, marking a significant improvement. It's very fair to say that the macroeconomic environment remains challenging, as you point out. We need to take it cautiously. That being said, I think you're right to one point out that the base was really lapping, and was relatively favorable. I think it's also fair to say that we have been experiencing within the industry, different type of adjustments, which was not only driven by the consumer environment, but really by the crackdown by the anti-alcohol ban. I think it's also a confirmation that the consumers are there and are adapting their way of consumption.
I think it's also a testament that we are now seeing the consumer shifting to different type of occasion, more private occasion. We have been also to adapt to this situation, adjusting the way we are interacting with our brands and with the consumer, shifting the channel mix and shifting as well our marketing channels to a more digital and adapt to this moment of consumption. We stay cautious, but also we are very glad to see our depletion return to growth as we were expecting. As it relates then to your second question, which I think was more on the underlying trend. That's true that on a quarter we have a lot of technical effects, and mainly in India, we had some phasing and pipe fill effects. We still believe that the underlying trend is around the high single digits.
Once we stated from both the Maharashtra impact and the pipe fill effect on the rest of the region, we've been seeing very positive momentum, lapping as well the favorable trends. On the other side, we also see significant turnaround in our key markets and very significant markets. Overall, if we restate on all these technical effects, I would say on both U.S., China, and India, so the negative impact of the inventory, the positive impact of the pipe fill effect in India, we are in a slight growth, which I think is also in line with the true sell-out. When we look at our sell-out in the last three months, we are also in this vein. Confirming that we are seeing some resilient consumption while remaining fragile.
Okay, thank you.
The next question is from Olivier Nicolai, Goldman Sachs.
Hi, good morning, Mauve, Joëlle . First of all, on Europe, could you give us more details on the underlying trend and what was the impact from phasing or even the customer negotiation that you mentioned, and how should we think about Q2? Then, if you could, go back to comment about China cognac. If you have any color that you could give us in terms of the channels, the growth in different channels and what kind of actions you've taken for Martell to actually have a much better off-trade performance. Thank you.
Thank you for the question. If I start with Europe, indeed we have been seeing some soft start of the year in Europe. This has been mainly driven by Germany and Poland, where we see the underlying trends being in the higher range of the single-digit decline. Similarly, we saw softer decline in Spain and France. In France in particular, our net sales have been probably more impacted by phasing where the underlying trends are better, and we see that we are also gaining share in France. We see some overall also improvements in the U.K. So the U.K. trend is improving. We do see underlying trends being soft over the summer. That has definitely not been helped as well by the warm summer that we experienced, most notably on the on-trade.
But we would see probably Europe to be in the low single-digit decline from an underlying standpoint. We had also suffered from phasing, most significantly in Poland, where we had some customer negotiation that will be resuming in Q2. Then in China, as I said, indeed, the cognac consumption is evolving. So we definitely saw that the depletion of Martell significantly improved in the off-trade. The on-trade remains challenged and under pressure because we see some further restriction taking on in some of the states. And we see really the consumption shifting to more private occasion. So we have been as well shifting from Martell, the activation and the way the brand is positioning. So we see overall the cognac category improving.
We see as well that the pricing has not been that significantly impacted, and we are back into a much stronger ground, but remaining very cautious at this point.
Thank you very much.
The next question is from Sanjeet Aujla, UBS.
Good morning, Mauve and Joëlle. Two for me, please. Firstly, on the U.S., can you just give us a sense if the destocking is now done or is there more to happen over the next three quarters? My second question is just coming back to China. Can you just give us a sense of how your channel mix has evolved over the last few years? I think in your earlier remarks, you had highlighted quite a big shift in occasions and in particular, how significant is the on-trade in your business today versus a few years ago? Thank you.
In the U.S., we have been guiding on the fact that the inventory adjustment will have some effects over the full year, even if it's fair to say that Q1 was particularly impacted. We will and we are constantly monitoring the situation, but we are not guiding on the quarter- by- quarter. Some further adjustments is to be expected on the full year. Then on China, indeed, we have seen, as mentioned, a shift and the on-trade being more impacted because of the crackdown. To be honest, I don't have the exact evolution. We are now on roughly 60% off-trade and 40% on-trade, even if it's fair to say that some on-trade are buying in the off-trade in China, so it's not a pure channel mix in this market.
Great. Thanks for that, Mauve.
The next question is from Laurence Whyatt, Barclays. Mr. Whyatt, your line is open.
Thanks very much. Morning, Mauve. Morning, Joëlle. In terms of the U.S., you've had a distribution change for over a year now, where you split your portfolio into three parts and put it through a number of distributors. Given you've had that for about a year, could you give us an update on the impact you think it's had, whether you think it's been a success, and whether there are any sort of teething issues in doing that over the past 12 months? Similarly, when you shifted a lot of the business away from RNDC towards the end of the year, how the new distributors picked up those lines and whether there are any teething issues in getting that underway over the past, I suppose it's just nine months now since that shift has taken place.
Secondly, on India and the potential IPO, I was just wondering, could you give us any more information as to what are the key decisions that you need to be making? What are the factors that are going to influence the decision whether to list the Indian business? Once the board takes that decision, how long after that decision would listing take place, potentially? Thank you very much.
Thank you, Laurence, for this question. If I start with the U.S., indeed we have been shifting in some key markets. The transition is now fully done and has been relatively smoothly. We have not been, and we do not believe that there was material impact from a sellout standpoint. Now, I think the key focus is indeed to make sure that we are all locked and loaded for the OND period. That is the key period for the markets. All the program activations are well in place, and we will now focus on execution, which is key in this market. I would say on this one, the focus is now OND. That is the key period that will allow us also to demonstrate that we are now focusing on execution, and solely execution. If I now go into your second question on India.
Indeed, no decision has been taken at this point. The board has been asking us to continue on the preparatory steps for a potential IPO. That being said, it's really for us to take on these steps and be prepared would the decision be made in the coming months. In Q1, we were indeed impacted by these steps because we had to change the name of the company, which created the need to adjust the label on our product. This is why we had some pipe fill effects in Q1, because we were anticipating some of the shipments to ensure we would avoid any type of disruption with the consumers. There is still a process that will be ongoing and discussion that will be ongoing with the board.
Be sure that when the decision will be made, you will be the first one to know.
The next question is from Celine Pannuti, JPMorgan.
Thank you. Good morning, everyone. My first question is on North America. I think sequentially, the market seems to have improved, seen decline, but slightly improving. At the same time, you sounded somehow cautious about affordability. Can you help us understand what the read of the market is now in the U.S.? As you look at the OND period, are you expecting more promotion, or are you expecting that relative improvement sequentially to hold? My second question is on China. There has been a big gap, it seems, on sell-in and sell-out. Are we expecting more of that or rather a bounce back in the second quarter? For the year, are we expecting to have an impact on this sell-in, sell-out difference in China? Thank you.
Thank you for your question. I will start with North America. Indeed, the latest sell-outs were promising and showing some progressive improvement and slight improvement. Fair to say that most of the categories remain in decline, but that the pace and the rate of decline is easing. We are expecting this trend to continue, but it's very slight. We still expect RTD to gain share in the spirits evolution and spirits category. That being said, we are not counting on a material bounce back of the U.S. at this point. We do see that the consumer sentiments remain historically low. We are more indeed, focusing on execution for the OND. We do believe that indeed, consumers are adapting and adjusting their consumption. We see them growing more because of affordability towards smaller formats, as an example. The promotional activities are not significantly increasing.
In Q1, we are seeing relatively stable pricing, and we see now that we start seeing also a positive mix. All in all, I would say we expect this slight improvements, but we are not counting on a material bounce back. Then the second question, I was losing on China in the inventory adjustments. Here as well, we have been guiding on the fact that we would have an inventory adjustment effect throughout the full year in both U.S. and China. That being said, Q1 was particularly impacted. The confirmation of the return to growth in the underlying trend is also promising in our ability to go there. The material impacts in Q1 will most likely ease on a full year basis.
Thank you.
The next question is from Richard Withagen, Kepler Cheuvreux.
Yeah, good morning, Mauve. Good morning, Joëlle. Two questions for me. First one on the U.S. You mentioned a slight improvement in your sell-out gap versus the U.S. bottled spirits market now around 2 percentage points. So what explains the remaining underperformance, and what initiatives do you have to improve the underperforming brands? Then the second question is, I think you report volumes growing 6%, organic sales down around 1%. So we have this negative price mix, over the quarter. Can you talk about the product mix and how should we think about the implications of this for gross margins?
Thank you. So, in the U.S., indeed, the gap to market was held around the 2 points, which is roughly what we had last year, but an improvement versus Q4. So we see that it's back to a narrowing. Here, I think, we are really counting one on the execution, as I mentioned. So we are now fully locked and loaded with a very good initiative plan for the key OND period. I mentioned the Jameson NFL activation, and this will be really supported by activation involved in the on-trade, in the off-trade, so it offers a very great platform for the brand. That is our biggest brand in the U.S. But we are not limiting that to Jameson, where Absolut and Kahlúa have an Espresso Martini focus also for OND. We have Absolut Ocean Spray cranberry program. So, you name it, I would say.
A lot of brand activations. We are being much more targeted and in place and focusing on execution. As mentioned, we have also innovation and innovation pipes that will support that. Obviously, the success of Malibu Pink is continuing and is delivering and supporting the rebound for the franchise, and more to come. That's for the U.S. Then your second question was on the mix. Indeed, we had a positive volume that was offset by the mix effect. It is mainly and solely because pricing was broadly stable, so it's really solely linked with the mix.
As you mentioned, linked to a product mix, but to be honest, it's more a geographic mix that is impacting that with the top product mix coming directly to that where it has been also disproportionately amplified during Q1 because we had negative technical effect and inventory adjustment in the U.S. and China, that are the most profitable markets. While having a disproportionate pipe fill effect and growth in India. So it has been amplified from a mix effect, but otherwise mainly driven by the mix with Martell being more present in China and the consequence of the geographic performance.
Right. Clear. Thanks very much.
The next question is from Edward Mundy, Jefferies.
Morning, Mauve. Morning, Joëlle. Two questions, please. The first is around the weight of destocking in the first quarter. Clearly, there's a lot going on in terms of timing issues and phasing and what have you. But do you think that the weight of destocking that impacted the first quarter, does that start to ease as you go through the balance of the year? Is my first question. The second question is just a more broader question around guidance, that you've had a pretty okay first quarter, some very early green shoots are starting to be visible in markets like China. Does that give you more confidence in delivery of the broadly stable sales guidance for the year? What are the main things that you're looking at, both on the upside and also on the downside?
Thank you for your question, Ed. On the weight of destocking, it's fair to say that Q1 has been mostly and particularly impacted. We do expect that to ease in the remaining part of the year while sticking and keeping some inventory adjustment. It's also a question of the base that you are looking at. A quarter is always creating some disproportionate weight effect to some extent because of the timing considered. As it relates to your second questions. As we have been indicating, we are confirming our confidence in our broadly stable net sales outlook. Continuing and sticking to what we mentioned during the full-year communication, that we still expect decline in the U.S. and China impacted by the inventory adjustment, not necessarily with the same weight as the one we saw in Q1.
With the underlying trend expected to improve in China, and here we are very glad to see that it is confirmed as from Q1, where we can highlight the return to growth as from Q1. We do expect, and we see a positive momentum in the rest of world, particularly driven by India, where we see very strong consumer fundamentals. I think for now, we are definitely confirming all the things that we have been highlighting during our financial communication end of August.
Great. Thank you.
The next question is from Mitch Collett, Deutsche Bank.
Thanks. Good morning. I appreciate you've been asked a lot of questions on China, but the one I really want to ask is, and I appreciate it's difficult, do you think that the consumer offtake has improved? Do you think consumer offtake has gone to positive, given that you're seeing positive growth in depletions? I know Richard already asked about the impact of volume versus revenue, and you said it was mainly driven by geographic mix rather than product mix or negative pricing. I'll ask the second part of his question again. Do you think the negative price mix that you have this quarter will continue for the full year? Do you think that will be a drag on gross margin? Thank you.
The first question, so it's on China, the consumer overall. Consumer in China? No. Sorry. We have debate on We didn't hear well the question. On the consumer in China, so yes, the underlying depletion and the positive trends and the confirmation of the cautious trade sentiment ahead of Mid-Autumn Festival is definitely a good sign. It's fair to say that we had an unfavorable base, so it's still impacted by that, and we remain very cautious because of the challenging macroeconomic environment. That being said, it's also a very signal that the situation is stabilizing and that we are seeing much better prospects. On the consumer shifting its habits, not necessarily shifting its sentiments overall. On your second question, which is on the mix, so indeed very driven by the geographic mix. This is an effect that we saw.
As we mentioned, and as we have been guiding, we see that we would expect some continued decline in the U.S. and China with the inventory adjustments, but Q1 was particularly impacted.
Okay. Sorry to follow up, but do you think that the negative price mix, given it's driven by country mix, is helpful or harmful for gross profit? I appreciate it's a sales call, but how do you think that's likely to play out?
Here, we have been experiencing this mix effect that we are mitigating, and the mix should improve on the overall full year. We are also making and taking action to offset that and protect our margin. We are confirming that we will be strongly defending our margin overall.
Okay. Thank you.
The next question is from Chris Pitcher, Rothschild & Co. Redburn.
Good morning. A couple of follow-ups, please. China and India. Firstly, on China, can you confirm, did depletions return to growth for the whole quarter or just over Mid-Autumn Festival? Given the destocking, are your inventory levels below what you would regard as a normal level? Then on India, it sounds like the trade loading should unwind once the name change and relabeling is done. You are saying that demand is still resilient, but another major Indian consumer company today was saying food inflation is becoming a reality, and perhaps the resilience that we have seen in the consumer may be is going to be under a bit more pressure. Are you still comfortable that the demand for your products is there when you strip out the easy comparatives? Thanks very much.
Thank you for the question. I will take the second question on India first. As we say, indeed, the underlying trend for Q1 was closer to the low double digits. We do believe that it was supported by the easy comp as you mentioned. That being said, the consumer demand and the underlying trends remain overall on the high single digits trend, which is in line with our expectation. We do believe that we still see very strong fundamentals and see the market continuing on this trend. We will be also, on our side, impacted by the UK-India FTA, which will help also the affordability of our Scotch brands. Overall, still very confident on our India underlying trends and fundamentals. On your first question, I am sorry, I forgot the one. Ah, yes, it was on the China inventory.
We have been seeing indeed a correction for this Q1. We are actively monitoring it. We will be, and we have been guiding on the fact that we will have an impact throughout the year. We will definitely end the year in a much healthier situation compared to the starting point of this year.
Could I, sorry, just to follow up. When you say you are back into depletion growth, was that for the whole of the quarter or just over Mid-Autumn Festival? I am just trying to understand what we should compare the - 25% with.
It's for the whole of the quarter.
Thank you very much.
You know, the weight of the season and festivals are significant in China.
Thank you very much.
Next question is from Trevor Stirling, Bernstein.
Good morning, Mauve and Joëlle. Two follow-ups, please. Mauve, returning to the U.S. and the future inventory adjustments, is that because you're starting OND with a bit more stock in your distributors than you think is necessary? Or is that because you're lapping tough comps and in the prior year, you were shipping a bit more than you were depleting? The second question concerning the Indian IPO, I appreciate that the board has to make the decision first, but after the board says yes, can you tell us broadly what the timing would be from that decision to a potential IPO?
Okay. Thank you. I thought you had a third question, and you wanted to cheat. On the U.S. inventory, you're right. On inventory, it's a combination effect of the absolute amount of inventory and what is the base you are cycling in order to have the impact on your net sales. For Q1, we are definitely, and we have been seeing a decrease in our inventory with the gap between the sell-in and the sell-outs really highlighting these adjustments. We do expect on the rest of the year that we will be continuing our efforts to reduce the absolute amount of inventory, which is our focus to make sure that we will get to the appropriate level of inventory that we still are actively monitoring and working with our partners and wholesalers.
But we should end the year with a much healthier base in absolute terms and not only lapping the comparable. On the IPO, indeed we are still under discussion, and we didn't get any approval. We are taking the steps in order, as you mentioned, for the time after the approval and the decision would be made to not be that long. Here, when the decision will be made, and you can assess and appreciate that it's a long process and an iterative process where we will be checking. Ultimately, the timing will take still a few months, but not that long and that many more, and it will really always depend on the market conditions.
Fully understood. Thank you, Mauve.
That was the last question.
Thank you very much, everyone, for joining us today. I think we're going to close now the call, and I wish you a very good rest of the day. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.