TWE says retail sales strong, considers Penfolds demerger

By Nicki Bourlioufas

Treasury Wine Estates (ASX:TWE) has a new CEO Tim Ford who has provided an update on its business, during the coronavirus pandemic and the results are surprisingly upbeat for a company that was smashed during the March share market sell off.

TWE shares fell to as low as $8.61, they have since rebounded to around $11 at the beginning of August, up almost 30%. That has been helped by sales of wine in bottle shops and over the internet In Australia and around the globe.

TWE expects its earnings before interest and tax to be between $530 million and $540 million, down around 20%, reflecting the impact of the COVID-19 pandemic, which has had a significant impact on TWE’s trading performance globally through the second half of the 2020 fiscal year.

However, some good news. While the company is due to report its official fiscal year 2020 results in mid-August, it has said that bottle shop wine sales are higher than a year ago in Australia. Strong retail sales – online and in bottle shops – have boosted earnings and are higher compared to the prior year, though higher margin luxury wine sales are lower.

In the Americas, and the US specifically, the retail channel has seen strong value and volume growth across all price points since March, with continued premiumisation driving strong value and volume growth in luxury and masstige portfolio price points versus the prior year. TWE’s priority brand portfolio, which includes Stags Leap, 19 Crimes, Matua, Beringer Brothers and Beaulieu Vineyard, grew collectively by more than 35% in retail channels across the same period.

“While it is right to remain cautious on the near-term outlook, given uncertainty remains around the timing and pace of recovery in our key markets, we remain optimistic around our return to both margin and profit growth,” said Ford.

“We will continue to remain agile and opportunistic, diverting resource and focus appropriately to markets and sales channels as consumer and shopper behaviour adjusts, and government mandated restrictions change.”

Penfolds demerger on the cards

TWE is considering separately listing its iconic Penfolds brand. Its analysis of a demerger since the market announcement in April “continues to validate the expectation that value will be created through a separate focus for both Penfolds and TWE’s other brands, globally.”

“Optionality exists as to the best operating model to extract that value, including a potential demerger by the end of calendar year 2021. TWE will continue to explore the best option that will drive long-term growth and value creation,” the company said.

“In the near term, TWE’s primary focus will be on managing the existing TWE business through the COVID-19 impacted trading environment, and on ensuring a successful execution of the US business restructure.”

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