STG Announces Q3 Results, Confirms Cigars International Expansion

Cigars International was once again the main feature of Scandinavian Tobacco Group’s (STG) quarterly results.

STG, which also owns General Cigar Co. amongst others, reported quarterly revenues of DKK 1.721 billion ($268.3 million) and an EBITDA, a form of profit, of DKK 388 million ($60.49 million).

The company says its organic revenue growth is up 1.9 percent compared to Q3 2016, while organic EBITDA is down .8 percent.

STG reports DKK 640 million ($99.7 million) in free cash flow year to date. It also announced a dividend of DKK 3.5 (54.5 cents) to shareholders, totally DKK 350 million ($54.5 million).

“I am pleased to see the steady progress in the quarter where we continued to focus on getting Cigars International back on track and on executing our strategy for the branded handmade and machine – made cigars businesses,” said Niels Frederiksen, ceo of STG, in the quarterly report. “Our branded handmade business had yet another good quarter and our machine – made cigars delivered a solid performance with full focus on improving the distribution and visibility of the reduced portfolio combined with new launches in several markets.”

Earlier this year Cigars International, the world’s largest cigar retailer, upgraded its IT infrastructure including its enterprise resource planning (ERP) and warehouse management system. The implementation did not go well as customers were placing orders that the retailer was not seeing and as such not fulfilling.

The issues caused STG to downgrade its financial guidance in May.

Overall, the company’s revenue is down 2.6 percent year to date, while EBITDA is down 7.5 percent. The May announcement indicated the company expected EBITDA to show 4-8 percent negative growth for the year, compared to the company’s original expectation of 1-3 percent.

The company says the issues “have been stabilized, whereby the customer service is improving and the focus is now on customer acquisitions, win-back campaigns, inventory availability and increased productivity.”

However, STG says the new systems have not yet achieved their expected cost savings and the customer outreach efforts, including discounts and free shipping, are hurting its bottom line.

“The negative price/mix of 1.0 % for the category was driven by both General Cigar as well as Cigars International. Price increases in the branded business were not enough to compensate for mix changes, and special discounts and promotional activities in Cigars International continued to dilute the price/mix impact for the category, although to a smaller extent than in the previous quarters.”

In positive news, the report confirms that STG will open two new retail stores in Texas, with the first set to open in “mid-2018.”

Elsewhere, the company reported “solid volume growth” for General Cigar Co., though the overall handmade cigar business remains down 4.6 percent compared to last year.

The company showed positive increases in its machine-made cigar business, particularly in France, double digit growth in handmade cigars outside of the U.S., positive growth in private label production and continued negative growth in fine-cut tobacco.

STG closed two European factories, reducing the total number of factories to 12, as part of a cost-cutting initiative. Unfortunately, the company says that volume reductions in machine-made cigars means the planned savings haven’t been fully realized yet.

The company’s stock opened at DKK 111.40 ($17.36). It is traded on the NASDAQ Copenhagen.