Treasury Wine just announced a $40 million profit downgrade for 2013-14.
The simple reason: it sold far less wine than it expected to over Christmas.
Interestingly it also said a slowdown in China sales had an impact. A crackdown on luxury items in the country has meant there is less demand for high-price wines.
The country’s communist government has said it wants to stamp out lavish displays of wealth that had become synonymous with China’s ruling elite.
In an ASX Statement this morning TWE said full-year profit would now be somewhere in the range between $190 million and $210 million. Shares were down more than 17% on the news.
Previously, it had said it expected to make a $250 million profit.
Here’s the full statement:
Treasury Wine Estates Ltd (ASX: TWE) today announced its expectation that EBITS for the first half of fiscal 2014 would be in the range of $42 million – $46 million (based on unaudited financial accounts) compared to $73.4 million in the prior year on a reported currency basis.
As stated at TWE’s full year results in August 2013, the first half of fiscal 2014 was expected to be below the prior year on a constant currency basis. During the half, TWE progressed with the planned realignment of US distributor inventory by reducing shipments while total brand building investment increased across the Group, particularly in Asia.
In Australia, TWE’s decision to increase prices on some of its Commercial portfolio, participate in less deep promotion initiatives across the portfolio over the Christmas period, together with significant competitive activity, resulted in higher than expected volume declines.
As stated at TWE’s Annual General Meeting in October 2013, the Company was observing signs that the well documented government austerity measures in China were impacting consumer demand for premium wine. The impact on TWE has since intensified, resulting in a reduction in volume.
TWE does not expect to recover the first half shortfall and expects these challenges to continue in the second half. Therefore the Company has lowered its EBITS guidance range for fiscal 2014 to $190 million – $210 million from its previous range of $230 million – $250 million.
Details of TWE’s financial performance for the first half of fiscal 2014, and the management actions to ensure a solid foundation for future profitable growth, will be provided to the market on 20 February 2014.