Treasury Wine (ASX:TWE) share price on watch after first-quarter update

COVID-19 continues to disrupt the execution of Treasury Wine’s growth plans

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The Treasury Wine Estates Ltd (ASX: TWE) share price could be a mover on Friday after the company announced its first-quarter trading update for FY22.

Why the Treasury Wine share price is on watch

Treasury Wines flagged that trading channel conditions in the first quarter were slightly below expectations for a recovery.

The company pointed to segments such as wholesale in Asia and on-premise in the Americas as below expectations. It described these markets as “generally open, but with disruptions”.

The on-premise market in Australia and New Zealand was also below expectations. This segment was flagged as closed or significantly disrupted.

Despite the disruptions, Treasury Wine said its underlying divisional execution and overall trading performance was in line with expectations.

The company’s Penfolds segment experienced continued momentum in key growth markets, including Asia (excluding China).

Treasury Wine’s premium brands portfolio delivered an improvement in net sales revenue (NSR). This was underpinned by the introduction of new products in Australia and growing ahead of the market in the United Kingdom.

Treasury Americas continues to build momentum having made a number of changes to its business model and portfolio. The company advised that its Ten portfolio continues to outperform, growing 3% compared to a broader category decline of 5%.

Management commentary

Treasury Wine’s CEO Tim Ford was cautious in his commentary for FY22.

… the recovery of key luxury channels impacted by the pandemic are slightly behind the expectations we had at the beginning of the year.

This is particularly the case in the US where re-openings continued at a gradual pace, but with on-premise depletions growth slower than we had anticipated, and in Australia, where extended lockdowns in Sydney and Melbourne have resulted in the closure of the on-premise channel, delaying our execution plans outside of the large retailers, particularly for Penfolds. In Asia, significant disruptions to key luxury sales channels continue across large parts of the region.

Ford also flagged moderating sales growth across key sales channels.

… retail and e-commerce channels continue to perform strongly, albeit with moderating growth rates compared to the prior year where there were significant shifts in consumer purchasing behaviour.

Treasury Wine share price snapshot

The Treasury Wine share price has been trading sideways since early June, hovering around the low $12.00 level.

Despite the lack of recent traction, Treasury Wine shares are up 28.4% year-to-date, driven by a solid rally taking place between May through to August.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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