Remy cautious on China despite cognac sales surge

By Emma Rumney

LONDON (Reuters) -Remy Cointreau's shares pared gains on Friday as its chief financial officer Luca Marotta warned a surprise uptick in growth at its cognac division, fuelled by China, may not last given uncertainty in the world's No.2 economy.

Shares in the maker of Remy Martin cognac initially rose 6.8% after it reported a far smaller than expected drop in fourth quarter sales, but were flat by 0950 GMT.

Analysts had anticipated a 3.4% decline in group organic sales and flat cognac sales. Instead, cognac sales increased 15.4%, bringing the group-level decline to just 0.7%.

Remy attributed the rise to its performance in China, one of its two main markets, where marketing initiatives had helped drive sales during the Lunar New Year festivities in February.

The huge annual celebration tends to boost liquor consumption, but Remy rival Pernod Ricard described this year's as "soft" on Thursday.

Marotta said uncertainty remained in China, and Remy could not guarantee its sales acceleration would continue.

"We think we are doing more than fine and ... better than our peers, but we remain humble," he said, warning Remy was not bullish on China going forward.

Investors in several sectors from drinks to luxury goods are fretting about Chinese demand as the world's second-largest economy sputters.

Barclays analyst Laurence Whyatt said most consumer companies were downbeat.

Given Remy's sales growth was partially based on increased sales to wholesalers and retailers, it remained to be seen if the firm could buck the trend, he continued.

Cognac companies like Remy also face the threat of looming tariffs on their product.

Oliver Adcock, European portfolio manager at Remy investor NS Partners, said Remy's success, however, showed the picture in China wasn't wholly negative.

"This is a good example of how there is still a fantastic consumer story in China," he said.

Meanwhile, Remy's problems in the United States, where wholesalers and retailers have been cutting expensive booze from their inventories, continued.

Marotta said the best case scenario for a U.S. recovery was now in the second half of its next financial year.

Remy reports full-year results on June 6.

(Reporting by Emma Rumney; Editing by Kim Coghill, Shri Navaratnam and Mark Potter)