Diageo has benefited from better than expected trading in the us, as people buy more expensive spirits to drink at home as they venture out less during the coronavirus pandemic.
The worlds largest spirits maker on monday said it expected first-half sales and operating profits to be ahead of the previous six months, after a good start in the us. however, it warned that compared with the first half of last year we still expect lower organic net sales and margin dilution.
Ivan menezes, chief executive of the london-based distiller, told the financial times the company was gaining market share in several countries, as consumers were buying more expensive liquors to prepare cocktails at home.
He said diageo had also been helped by younger people preferring spirits such as whisky and tequila over wine and beer. the groups don julio and casamigos tequilas have been particularly popular, with sales growing at more than 50 per cent in recent months, it said.
Diageo makes roughly 80 per cent of its sales in the us, its largest market, from direct sales to consumers as opposed to trade through restaurants and bars. to offset lower activity in the hospitality industry, the company has encouraged consumers to drink from home using initiatives such as its virtual scotch and sofa whisky tasting festival.
If you look at consumer behaviour coming out of lockdown, were seeing strong well-marketed brands doing well, mr menezes said. as people are spending more time at home, theyre much more interested in high-quality premium experiences [and] spirit brands are still a very affordable luxury.
Analysts at investec said diageos trading update had revealed better us trends, but warned that other markets were still less robust. we think the backdrop for spirits is still extremely fragile, they added. the companys share price, which has dropped more than 10 per cent since february, was up almost 7 per cent on monday.
Diageo said rising covid-19 infection rates in europe, where 50 per cent of sales come from restaurants and bars, remained a risk. mr menezes said diageo was definitely hearing concern [from hospitality partners]; the government has to get the right balance [...] to protect livelihoods.
Diageo last month took a 1.3bn writedown relating to its businesses in india, nigeria, ethiopia and the windsor whisky brand in south korea, after the lockdown measures closed drinking venues in the spring and hit the company harder than expected. the charge hit the groups pre-tax profits, which slumped almost 52 per cent to 2bn from 12.9bn the previous year.
The company did, however, reiterate that both sales and profit margins were expected to narrow.