Cigar Industry Sees Slowdown in Growth: Should We Be Worried?

Cigar Industry Sees Slowdown in Growth: Should We Be Worried?
Date: March 2023
Author: Inspector X

Scandinavian Tobacco Group (STG), the parent company of several cigar brands, has announced its financial results for 2022. STG revenue was DKK 8.762 billion ($1.241 billion), down by 0.8% compared to 2021. Although the company’s EBITDA before special items increased to DKK 2.27 billion ($321.75 million), both figures represent a decline when factoring in organic growth. Despite this decline, STG’s net profits in 2022 were up from 2021. For 2023, the company has provided guidance for net sales, EBITDA margin before special items, free cash flow before acquisitions, and adjusted EPS. STG has consistently stated that the massive growth in 2020 and 2021 due to the pandemic was a temporary phenomenon, and it expected the cigar market’s growth to cool down in 2022.

The cigar industry, like most other industries, is subject to booms and busts due to the rise and fall of demand. These booms and busts can cause significant effects on the industry, leading to increased revenue, followed by a decline in demand and revenue, as consumers’ preferences change. STG’s financial results are a uniquely important barometer for the cigar industry since the company’s immense size and focus on cigars make it a significant player in the industry.

Despite STG’s higher earnings, the slowdown in growth may be concerning for the industry. The decline in revenue compared to 2021, despite the increase in net profits, is indicative of a slowdown in growth. STG attributed this slowdown to declining consumer demand for handmade cigars after the pandemic, but the demand is still above the pre-pandemic level. The company also reported a decline in sales growth for its North American Online & Retail division, which includes several well-known cigar brands. Although the division had “almost 1 million active consumers” in 2022, the organic sales growth was down by 6.1%, and the company attributed this decline to a drop in online sales.

STG’s financial results raise questions about whether the cigar industry is experiencing a slow down. Although STG’s performance is not necessarily indicative of the industry’s overall performance, its immense size and focus on cigars make it a crucial player in the industry. STG has consistently said that the pandemic-induced growth in 2020 and 2021 was a temporary phenomenon, and the company expects the cigar market’s growth to cool down in 2022. However, the industry’s performance in 2023 may shed more light on whether the industry is experiencing a slow down or not.

In conclusion, the cigar industry, like most other industries, is subject to booms and busts due to the rise and fall of demand. STG’s financial results for 2022, with its decline in revenue compared to 2021, may be indicative of a slowdown in growth, although its net profits increased. The industry’s performance in 2023 may provide more clarity on whether the cigar industry is experiencing a slow down or not.

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