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Brown-Forman reports flat Q1 net sales

Jack Daniel’s owner Brown-Forman has reported stagnant net sales of US$766 million in the first quarter of fiscal 2020, impacted by tariffs on American whiskey.

The cost of Jack Daniel’s is set to increase due to the EU-US trade war

Operating income for the three-month period ending 31 July 2019 fell by 6% to US$248m.

“Our first quarter results came in largely as anticipated considering the year-over-year drag from tariffs and timing of customer orders,” said Lawson Whiting, president and CEO.

“Our takeaway trends remain healthy in most of our major markets globally, with particularly improving trends in the United States, our largest market.

“We believe we remain on track to deliver another year of solid underlying net sales and underlying operating income growth driven by the Jack Daniel’s family of brands.

“This includes the benefit we expect from the launch of Jack Daniel’s Tennessee Apple beginning in October, as well as the continued strength of our portfolio of premium Bourbons and Tequilas.”

During the period, Brown-Forman and Bacardi agreed to end their distribution alliance in the UK after 17 years.

Whiting added: “We continue to invest behind the momentum of our business, by not only absorbing much of the tariff costs, but thoughtfully re-allocating and reinvesting back into our brands and our people, including the recent announcement of establishing our own distribution platform in the United Kingdom.

“We believe that investing in momentum will position us well for the next generation of growth and continue to deliver superior returns for our shareholders.”

Geographically, Brown-Forman’s net sales in the US grew 4% driven by “sustained double-digit growth” from premium Bourbons Woodford Reserve and Old Forester, and high-single-digit net sales growth from Tequila brands Herradura and El Jimador.

Underlying net sales in emerging markets grew 3%, with Mexico up 3%. Russia experienced a 62% increase in net sales as a result of “strong consumer momentum” and “disruption” during the fiscal 2017 route-to-consumer change.

China and India reported “strong” double-digit growth, led by Jack Daniel’s.

Underlying net sales in developed international markets fell by 3%. The UK and Germany declined by 14% and 9%, respectively.

Travel retail declined by 14% driven mainly by timing from customer orders last year.

Brand performance

In terms of brands, the Jack Daniel’s portfolio fell by 1%, “impacted by approximately three percentage points due to tariff-related buy-ins and related net pricing reductions”.

Jack Daniel’s Tennessee Whiskey experienced a 4% decline.

Super-premium American whiskey brands – including Woodford Reserve, Jack Daniel’s Single Barrel and Gentleman Jack – saw net sales increase by 16%.

Woodford Reserve was the “largest contributor” during the period, up by 15%.

Old Forester grew by double digits as the firm “continues to leverage recent investments” including its new Louisville distillery and “increased focus” from the emerging brands team in the US.

Both El Jimador Tequila and Herradura Tequila increased net sales by double digits. Herradura was up 22% driven by “pricing and higher volumes in Mexico and the US”. El Jimador grew 10%.

Finlandia vodka’s net sales declined 5%, due to the “competitive vodka category” in Poland offset by “positive volume growth in Russia”.

For fiscal 2020, the company expects underlying net sales growth of 5% to 7% and underlying operating income growth of 3% to 5%.

Tariff pressures “negatively impacted” Brown-Forman’s 2019 fiscal year growth, when it reported a 2% net sales increase.

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