The owner of Jose Cuervo reported a drop in net sales in Q2, after volume declined in the U.S. and Canada.
Becle, the world’s largest producer of tequila, reported a 2.4% decline in sales to $662 million in its quarterly earnings presentation last Friday. The Mexico City based group is parent company to Proximo Spirits, which houses and distributes the portfolio of major tequila brands and other spirits outside of Mexico. The group’s gross profit declined 5.3% to $334.8 million in the three months ending June 30th.
The group said the prevailing theme throughout this year has been pressure on profitability, primarily driven by “region mix headwinds,” exchange rate appreciation and inflation of input costs.
“Despite these difficulties, we are proud to report that our premiumization strategy has provided some relief, as we have seen robust growth in our premium tequila and whiskey segments, outperforming the overall industry,” the company said in a statement.
Net sales of the group’s flagship brand Jose Cuervo increased 1.6% and represented 36.9% of total net sales for the quarter. Brands labeled “other tequilas,” which includes 1800 Tequila, saw sales increase 0.8%, representing 34.6% of total net sales. Last week, Brand Finance named 1800 Tequila the fastest growing tequila brand (alongside George Clooney’s Casamigos) after the brand value more than doubled last year.
The group’s other spirits portfolio, which includes Kraken rum, Bushmills Irish whiskey, and Conor McGregor’s Proper No. Twelve Irish Whiskey declined by 4.8%. The ready-to-drink portfolio also decreased by 23.6%.
In the group’s biggest market, the U.S. and Canada, sales fell by 12.9% due to volume decreases and foreign currency effects from the appreciation of the Mexican peso against the U.S. dollar. The U.S. and Canada represented 53.8% of sales, while Mexico made up 27.7%, where the group reported a 17.7% increase due to “premiumization efforts” and price increases.
The company said it expects better results over the coming months, with supply chain stabilization and decreasing prices for agave expected to provide positive tailwinds over the medium term.
Other major tequila companies have not reported similar losses recently. Diageo shares its results tomorrow, but growth for the first half of fiscal 2023 was primarily driven by tequila, led by Casamigos and Don Julio, which saw net sales increase by 28% and 20% respectively. With the spirit group’s dependence on tequila, last July Diageo assured shareholders it had reviewed its approach to agave procurement. Campari’s Espolòn also had strong momentum in its core U.S. market (30.8% in Q2).