Treasury Wine Estates (TWE) reported double-digit growth in net sales revenue (NSR) during the first quarter of fiscal year 2025 and projected a profit increase of up to 23.10% for the fiscal year. However, the Melbourne-based wine producer’s performance will depend on the economic environment and geopolitical dynamics in key markets, including China.
The latest NSR growth and fiscal 2025 estimates are detailed in TWE’s ASX announcement released last week, which indicates that this growth is driven by the company’s luxury-led focus. The momentum of Penfolds remains strong, particularly in Asia and Australia.
According to the announcement, following the re-entry into China after the removal of tariffs on Australian wines in late March, the Chinese market’s performance met expectations, including during the mid-autumn festival, a traditional peak wine season. During Q1 FY2025, the re-ordering and depletion of the Bins & Icons were tracking well, aligning with previous estimations.
Since the removal of tariffs, Australian wine imports have seen a significant increase, largely attributed to the strong impact of Penfolds’ return. According to data released by Chinese customs, China imported 9.44 million liters of Australian wine in containers of 2 liters or smaller during July and August, valued at US$141 million. This marks a staggering increase of 559-fold and 1696-fold, respectively, on a year-on-year basis.
Penfolds is the most popular imported wine brand in the Chinese market, making its performance in China a crucial component for TWE. According to the company’s 2024 annual report, which covers the past 12 months ended in June 2024, Asia emerged as the largest regional market for Penfolds, generating sales revenue of AU$629.6 (US$420.8) million, with a 34.7% year-on-year increase. This accounted for 62.92% of Penfolds’ total sales revenue of AU$1,000.5 (US$668.7) million and. China played a significant role in lifting Penfolds’ sales just three months after tariff removal.
Based on the Q1 performance, TWE expected an increase in earnings before interest and taxes (EBIT) to AU$780 to 810 million (US$521.4 to 541.4 million) in FY 2025, representing an 18.54% to 23.10% increase from the AU$658.1 million (US$439.9 million) EBIT in the previous fiscal year.
Despite the optimistic outlook focusing on the Asian market, TWE highlighted a series of risks in the announcement, cautioning against reliance on any forward-looking statements. These risks include potential changes in TWE’s key markets (including China), such as economic fluctuations that impact consumer demand, variations in the production cost base due to factors including inflation, risks related to the DAOU Vineyards acquisition, and ongoing geopolitical challenges faced by the company.
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