Weak Chinese and US markets weigh on Pernod Ricard Q1 sales

Pernod Ricard reported a 7.6% like-for-like sales decline to 2.384 billion euros in its first fiscal quarter, underperforming analyst expectations, primarily driven by significant destocking in the U.S. (down 16%) and soft consumer demand in China (down 27%). Despite these headwinds, the spirits maker reiterated its expectation for sales improvement in fiscal year 2026, weighted towards the second half, and maintained its long-term guidance of 3-6% annual organic sales growth and margin expansion for 2027-2029, while remaining cautious on China's demand outlook ahead of the Chinese New Year.

Analysis

Pernod Ricard reported a 7.6% like-for-like sales decline to 2.384 billion euros in its first fiscal quarter (July-September), underperforming the company-compiled analyst consensus for a 7.1% decline. This contraction was primarily driven by significant destocking activities in the United States and persistent weak consumer demand in China. The moderately negative sentiment reflects these immediate operational headwinds.

Sales in the United States plummeted 16% as distributors continued to adjust inventory levels, which had been boosted in fiscal year 2025 due to prior tariff uncertainties. China experienced an even sharper 27% sales fall, attributed to soft consumer demand during the summer and Mid-Autumn Festival, with caution remaining for the upcoming Chinese New Year period. While cognac sales remained depressed, premium brands like Jameson whiskey demonstrated growth, indicating a mixed portfolio performance.

Despite the challenging quarter, Pernod Ricard reiterated its expectation for sales improvement in fiscal year 2026, with trends skewed towards the second half. The company also maintained its long-term guidance of 3-6% annual organic sales growth and organic margin expansion for the 2027-2029 period, supported by an ongoing restructuring plan aimed at cost reduction. This forward-looking optimism contrasts with the immediate quarterly performance, suggesting a belief in eventual market normalization and strategic execution.

Key Decisions for Investors

• Investors should closely monitor Pernod Ricard's Q2 results for signs of sales trend improvement, particularly the completion of destocking in the US and any recovery in consumer demand in China.
• Evaluate the effectiveness of the ongoing restructuring plan and its contribution to margin expansion, assessing its alignment with the reiterated 2027-2029 organic growth and margin guidance.
• Assess the impact of the upcoming Chinese New Year on demand in China, as this period is critical for spirits sales and could signal a turning point for the region's performance.