LVMH Moët Hennessy Louis Vuitton (LVMH), owner of the Hennessy cognac brand, reported their first half earnings late last week. Total LVMH first half of 2017 revenues were up 15% from the first half of 2016 and profits were up 23%, led primarily by a 34% increase in fashion and leather goods and a 21% increase in the wines and spirits. Hennessy volumes were up 16% in the first half based on “excellent performance in the U.S. and confirmed recovery in China for all qualities.”

LVMH noted that all of its Hennessy cognacs saw increases in volume and that recently introduced products such as James Hennessy, Hennessy Classivm and Hennessy Black also experienced impressive gains. LVMH noted that its “most prestigious cognacs will be the focus of special attention in the second half, including an international
campaign for Hennessy Paradis Impérial.”

A Hennessy V.S. Shortage?

During the first quarter LVMH financial report the company noted that there was a potential Hennessy V.S. shortage brewing. At that time, a Hennessy representative noted “there may be issues of availability in the later part of the year given the consistently strong demand.” The representative further noted that Hennessy V.S. sales had grown 15-20% over the past three-four years.Hennessy’s U.S. sales are primarily driven by its Very Special (V.S.) cognac. The growth rate of sales of Hennessy V.S. is about 30% in the United States. V.S. sales account for well over 80% of Hennessy cognac sales in the United States. It was the growing popularity and sales of Hennessy V.S. that caused LVMH executives to realize that ‘they can’t go further down in inventory.”

LVMH expected that if Hennessy V.S. sales growth continued at the pace of the first quarter, they would experience inventory shortages later this year. While the second quarter traditionally is not a big sales month for spirits, including cognac, a company representative noted in the first half conference call last week that cognac sales did not grow as fast in the second quarter as they had done in the first quarter. LVMH also made no mention of a Hennessy V.S. shortage later in the year.

During last week’s first half LVMH financial conference call the company noted that the focus for Hennessy on the second half would be on product innovation and introducing new ways for customers to consumer their products. They expect volumes of cognac to be muted in the second half due to exceptionally high volumes in the US in Hennessy in recent years and also due to the spring frost in the Cognac and Bordeaux regions earlier this year.

The company noted that the spring frost of 2017 will impact 2018 and 2019 but may impact this year as a decision may be taken to retain some eaux-de-vie this year to assembled later.