TWE Charts Cost Cuts and Inventory Cuts Amid US-China Market Slowdown
Treasury Wine Estates moderates growth forecasts due to softening demand in key US and China markets, unveiling a major transformation program and cost-saving measures to safeguard brand strength and profitability.
- Weakened category dynamics in US and China dampen near-term growth
- Inventory reduction plans target 0.7m cases over two years in key markets
- $100 million annual cost savings targeted starting fiscal 2027
- 1H26 EBIT expected between $225m and $235m; 2H26 to improve
- Leverage projected at 2.5x, above target range for two years
Market Headwinds in US and China
Treasury Wine Estates (ASX, TWE) has signaled a cautious near-term outlook amid weakening demand in two of its most important markets, the United States and China. Recent months have seen a slowdown in category growth, with distributor inventories in both regions rising above optimal levels. This has prompted the company to moderate its depletion growth expectations and take decisive action to protect its premium brands, particularly Penfolds, which faces pricing pressure from parallel imports in China.
Strategic Inventory and Cost Initiatives
In response, TWE plans to reduce distributor inventory by approximately 0.7 million cases over the next two years; 0.4 million cases in China and 0.3 million cases in the US outside California. Alongside this, the company is targeting $100 million in annual cost improvements starting in fiscal 2027, with full benefits expected over two to three years. These measures are part of a broader transformation program, dubbed TWE Ascent, launched under new CEO Sam Fischer to streamline operations and reinforce long-term profitability.
Financial Outlook and Leverage Considerations
TWE forecasts first-half fiscal 2026 EBIT between $225 million and $235 million, with an expectation of stronger performance in the second half as the company navigates through the California distribution transition and inventory adjustments. However, leverage is projected to remain elevated at around 2.5 times net debt to EBITDA for approximately two years, exceeding the company’s target range of 1.5 to 2.0 times. To address this, TWE is considering a range of financial strategies including dividend adjustments, non-core asset sales, and capital expenditure reviews.
Brand Strength Amid Market Challenges
Despite these headwinds, Penfolds continues to show resilience with solid depletion growth in key markets, led by popular labels Bin 389 and Bin 407. The ultra-luxury segment, however, is underperforming relative to expectations, reflecting broader softness in the global fine wine market. The company is taking steps to restrict shipments that contribute to parallel imports in China, aiming to protect brand equity and pricing integrity.
Looking Ahead
CEO Sam Fischer emphasized the company’s strong foundations and the opportunity to accelerate transformation efforts. The TWE Ascent program will focus on portfolio evolution, operating model transformation, and cost optimisation to position the business for sustainable growth. Investors will be watching closely for updates on these initiatives and the company’s ability to navigate ongoing market uncertainties.
Bottom Line?
TWE’s transformation and cost-cutting efforts will be critical to navigating a challenging market landscape and restoring growth momentum.
Questions in the middle?
- How quickly can TWE realise the targeted $100 million in annual cost savings?
- What impact will the ongoing RNDC settlement negotiations have on financials?
- Will the US and China markets recover sufficiently to support TWE’s premium brand growth?
