Luzhou Laojiao Earnings: Demand Headwinds for Subpremium Products, but Outlook Remains Promising

Wide-moat Luzhou Laojiao’s second-quarter revenue and net profit rose only 11% and 2% year over year, respectively, tracking below our full-year estimates. We think this was largely due to demand headwinds for its subpremium brand Jiaoling, while sales growth of its flagship brand National Cellar 1573 and mainstream brand Tequ should continue to see double-digit sales growth over 2024. A transitory hit from higher taxes, including sales tax and income tax, has dampened the firm's bottom line for the quarter, but this is related to the production schedule and we expect it to be normalized on an annualized basis. Excluding the tax hit, we estimate Laojiao’s second-quarter net profit should have grown 11% from a year ago, in line with peer Wuliangye.