Pernod Ricard Reports Steep Sales Declines in US and China, Trims Growth Outlook

Pernod Ricard, the world's second-largest spirits maker, reported steep sales declines in both China and the United States on Thursday and said it now expects to achieve only the lower end of its long-term sales target through 2029, underscoring the prolonged downturn facing global spirits makers. The French wine and spirits group, which produces Martell cognac and Absolut vodka, saw its shares fall more than 6% as CEO Alexandre Ricard told investors that the U.S., its largest market, offered little growth potential over the next three years.

For the full fiscal year 2026, organic sales declined 3.9%, slightly worse than the 3.7% drop estimated by analysts. Sales in the U.S. and China fell 14% and 19%, respectively, during the year ended June 30, reflecting weakening consumer demand, changing drinking habits, and the lingering effects of trade tensions and economic uncertainty in key markets.

Looking ahead, Pernod now expects sales growth at the lower end of its 3% to 6% target range through 2029. The company had previously aimed for the midpoint of that range but has revised its expectations downward due to the challenging outlook in its two largest markets. "The assumptions that drive that kind of outlook are based on a U.S. market which is not in growth over that period and which is quite soft," Ricard told Reuters in an interview. He added that Pernod's broad geographic footprint should help support performance in the coming years, but acknowledged that the U.S. would remain a drag on overall group performance.

Prospects for the current fiscal year, which began on July 1, appear even more subdued. Pernod forecasts broadly stable organic net sales, with trading conditions in the U.S. and China expected to remain challenging in the first quarter. The company has been grappling with a multi-year sales downturn that has eroded valuations across the industry, triggered management changes, and prompted asset sales and aggressive cost-cutting measures.

Despite the challenging environment, Ricard said Pernod expects to complete its €1 billion restructuring programme a year ahead of schedule. The company has already cut approximately 3,600 jobs since its 2024 financial year as part of efforts to streamline operations and improve efficiency. The accelerated restructuring is intended to position the group for a recovery when market conditions eventually improve, though timing remains uncertain.

In a positive development, Ricard also told investors that the board was actively discussing a potential initial public offering (IPO) of the group's Indian business and had already taken preparatory steps. India has overtaken China as Pernod's second-largest market, and an IPO could unlock significant value for shareholders while providing the Indian operations with greater strategic flexibility and access to local capital markets. The move would follow a broader trend among multinational companies seeking to list their Indian subsidiaries to capitalise on the country's strong economic growth and expanding consumer base.

Bernstein analyst Trevor Stirling noted that Ricard's comments on the U.S. were largely expected, following Diageo's earlier this month, that the market would remain negative for the next three years. "There was no 'massive surprise' in the results to justify the share reaction," Stirling said, given that Pernod's performance and guidance were broadly in line with expectations and peers. The sharp decline in Pernod's share price, however, suggests that investors were hoping for more optimistic signals or a clearer path to recovery.

The spirits industry as a whole is navigating a difficult period characterised by shifting consumer preferences, health-conscious drinking trends, and economic headwinds that have dampened discretionary spending. Younger consumers are increasingly opting for lower-alcohol or non-alcoholic beverages, while premiumisation strategies that once drove growth have faced headwinds as inflation squeezes household budgets. In addition, geopolitical tensions and trade barriers have complicated supply chains and disrupted sales in key markets.

For Pernod Ricard, the road ahead appears challenging, with limited growth visibility in its largest markets. However, the company's diversified geographic footprint, ongoing restructuring efforts, and potential value creation from an India IPO offer some grounds for optimism. Investors will be watching closely to see whether the company can navigate the downturn effectively and position itself for a recovery when market conditions eventually improve. For now, the spirits giant remains in a holding pattern, awaiting signs of a turnaround in consumer demand and economic conditions.