Diageo's Sales Goals Under Pressure Amid Industry Slowdown
Diageo's newly appointed finance chief, Nik Jhangiani, faces scrutiny as investors question the feasibility of the spirits giant's medium-term sales targets. With industry sales declining, analysts and investors alike believe that reaffirming the 5% to 7% annual growth target may be unrealistic.
Kai Lehmann, a senior analyst at Flossbach von Storch, a top 20 Diageo investor, asserts that "7% is hardly achievable in the medium to long-term." The concerns stem from a decline in sales across the sector due to rising inflation and interest rates, leading consumers to reduce spending.
Since taking the CEO role in June 2023, Debra Crew has faced challenges, including a profit warning and wavering confidence in management. Despite highlighting the difficulty in predicting the market's recovery, Crew has maintained that Diageo aims to return to 5% to 7% sales growth.
Some investors suggest a slight reduction in the target rate, such as to 4%-6%. However, this remains above the aspirations of Pernod Ricard and Remy Cointreau, who aim for up to 7% and "high single digit" growth, respectively.
Diageo's ambitions may be overly optimistic given the industry's challenges, including a shift towards weight-loss drugs reducing alcohol consumption. The company's price-earnings ratio has dropped significantly in recent years, reflecting market concerns.
Despite temporary economic headwinds, some investors believe Diageo's challenges are manageable. However, the ability to sustain the company's premium drink sales growth rate remains a key question.
Diageo has declined to comment ahead of its results announcement on February 4th. Analysts from Barclays, Jefferies, and RBC Capital Markets predict that the company will lower its medium-term guidance next week.