Luxury Growth Masks Treasury Premium Brands’ Decline as EBITS Guidance Slips

Luxury-Led Growth Drives Interim Results

Treasury Wine Estates (TWE) reported a strong first half of fiscal 2025, underpinned by its strategic focus on luxury wine brands. The company’s earnings before interest, tax, and significant items (EBITS) rose 35.1% to $391.4 million, with margins expanding by 2.8 percentage points to 25.3%. This performance was largely fueled by the stellar growth of Penfolds and the contribution from the recently acquired DAOU portfolio in Treasury Americas.

Luxury net sales revenue (NSR) jumped 52%, including 18.2% organic growth, now accounting for 55.8% of group NSR. Penfolds, in particular, showed remarkable momentum in Asia, benefiting from the re-establishment of its Australian country of origin (COO) portfolio in China and strong demand across other key Asian markets such as Hong Kong and Thailand.

DAOU Acquisition Accelerates Treasury Americas

The integration of DAOU Vineyards is progressing well, with NSR up 11.2% compared to the prior corresponding period. Treasury Americas’ EBITS surged 69.8%, supported by DAOU’s contribution and operational synergies. Notably, TWE upgraded its synergy expectations from over US$20 million to approximately US$35 million, with around US$30 million anticipated in fiscal 2026.

This acquisition strengthens TWE’s foothold in the premium US market and complements its luxury-led strategy. The company is preparing to transition to a global Premium division starting fiscal 2026, aiming to streamline operations and enhance brand building across its portfolio.

Challenges in Treasury Premium Brands

Despite the luxury segment’s success, Treasury Premium Brands experienced a 4.9% decline in combined NSR, reflecting ongoing softness in consumer demand for wines at lower price points. EBITS for this segment fell 48.9%, with margins contracting by 5.1 percentage points to 6.4%. The decline was driven by volume reductions, higher cost of goods sold, and the cycling of prior gains from vineyard asset sales.

TWE explored divestment options for the Commercial portfolio but concluded that the offers did not represent compelling value, opting to retain these brands while focusing on operational improvements. The company expects the Premium division to stabilize in the second half of fiscal 2025, supported by cost reductions and brand repositioning.

Balance Sheet and Cash Flow Strength

TWE’s balance sheet remains robust, with net assets increasing by $263.4 million to $4.87 billion, partly driven by foreign currency movements. Net debt rose to $1.87 billion, influenced by adverse USD exchange rates and vineyard lease renewals. The company maintained a strong cash conversion rate of 90.4% in 1H25, reflecting efficient working capital management and favourable shipment phasing.

Capital expenditure increased to $78 million, with investments focused on maintenance, sustainability initiatives, and growth projects including vineyard acquisitions and production technology enhancements. TWE’s capital structure remains investment grade, with net debt to EBITDAS at 2.0x and liquidity of $1.2 billion.

Outlook and Strategic Focus

Looking ahead, TWE reiterated confidence in its luxury-led growth strategy, particularly the long-term potential in China and other global markets. Penfolds is expected to deliver low double-digit EBITS growth for the full year, while DAOU’s integration and synergy realisation will support Treasury Americas’ performance.

However, the company lowered its full-year EBITS guidance to approximately $780 million, at the lower end of the previous $780-810 million range, primarily due to subdued expectations for Treasury Premium Brands. The transition to a global Premium division is viewed as a key opportunity to enhance this segment’s performance and align with the broader luxury focus.