Treasury Wine Estates (TWE) says it is not in a position to revise its guidance for FY16 due to lower-than-expected performance in China and distribution issues in California. The company said it was unlikely to meet FY26 depletion targets for Penfolds in China.
TWE said that even so, 1Q26 shipments were in line with expectations across key markets, globally, supported by the successful annual Penfolds Collection Release in early August.
But a softness in depletions in June and July in China reflected changing alcohol consumption patterns in the market, particularly in large-scale banqueting.
TWE said the mid-Autumn festival period would provide a clearer outlook of the likely performance trends through the remainder of the year, however those results were still pending.
“If the performance trends indicated by the preliminary data continue through F26, Penfolds depletions targets for F26 in China are unlikely to be achieved,” TWE’s statement to the ASX said.
“As a result, TWE no longer believes it is appropriate to retain the Penfolds guidance for low to mid double-digit EBITS growth in F26 and approximately 15 per cent EBITS growth in F27.”
To offset the softer outlook, TWE is implementing several mitigation strategies, including reallocating Penfolds products to other key markets where sustainable demand exists, while maintaining pricing discipline to protect brand equity.
Distribution disruptions in California
While Treasury Americas’ portfolio was performing well outside of California, with depletions growing ahead of the Luxury category, up more than five per cent – led by DAOU, Frank Family Vineyards and Stags’ Leap, in California, depletions were impacted by the distributor transition, including key account set-up activities in September.
In July, TWE appointed Breakthru Beverage Group as its exclusive distributor in California, following one of its existing distributors, Republic National Distribution Company (RNDC), announcing it would close in September.
TWE had warned the change could impact Treasury America’s net sales revenue by around $50 million, depending on negotiations with RNDC, which are ongoing, and differences in distribution business plans between RNDC and Breakthru. Until those negotiations are finalised, overall NSR and WBITS impact were uncertain.
One key issue in the negotiations is the remaining inventory – worth $100 million NSR – currently held by RNDC, including 0.2m case excess of shipments to depletions in California, TWE disclosed in August.
“While optionality exists regarding the management of this inventory, there may be an additional impact to TWE’s F26 shipments and operating plan NSR, depending on what is ultimately agreed between TWE and RNDC.
“However, there is increased uncertainty that this will occur and therefore TWE no longer believes it is appropriate to retain the guidance for modest EBITS growth in Treasury Americas in the year,” it said.
Because of the uncertain outlook for Penfolds and Treasury Americas, the company said it wasn’t appropriate for it to retain its EBITS growth guidance at a Group level for FY26.
It also paused its $200 million share buy-back plan, announced at its FY25 results update in August, until there is greater clarity around trading conditions and expectations. It had reached 15 per cent completion by the end of September.
TWE said it retained a “strong and flexible capital structure”, with around $1 billion liquidity and “significant headroom” to its financial covenants under its borrowing arrangements.
Its AGM is being held today, 16 October.
