Cigar Library
Brand HistoriesAuthor: Usman Dawood
Scandinavian Tobacco Group (STG), a global leader in the cigar industry, recently publicized its Q2 2023 financial results, which fell short of expectations. The reported revenue was DKK 2.2 billion ($320 million), marking a 2.3% decline year-over-year. Along with other financial indicators like EBITDA margin and Return on Invested Capital (ROIC) showing a slight dip, it begs the question: is the industry slowing down or is it simply self-correcting after an abnormal growth period during the pandemic?
STG, listed on the NASDAQ Copenhagen, boasts an expansive portfolio that includes prominent retailers and brands like Cigars International, General Cigar Co., and Forged Cigar Co., among others. It has also lowered its forecast for the rest of 2023 due to multiple factors such as inventory adjustments, market share losses in Europe, and delays in U.S. store openings.
Volatile Environment or Market Realignment?
The reduced outlook for 2023, according to STG, arises from “a more volatile environment than expected.” The company cites ongoing inventory adjustments, slower recovery of market shares in Europe, delays in U.S. retail openings, and currency fluctuations as contributing factors. While this could indicate a slowing down of the industry, it might also be a symptom of the market correcting itself after a period of rapid, and perhaps unsustainable, growth driven by pandemic-related changes in consumer behaviour.
The Pandemic Aftermath
During the pandemic, many industries, including tobacco, saw a surge in sales, as consumers stocked up or turned to comfort goods. As life returns to a semblance of normality, it’s possible that the industry is adjusting to more sustainable, pre-pandemic levels of consumer demand, rather than experiencing a decline. This would suggest that the current figures are not a slowdown but a market correction.
Company’s Future Outlook
Despite the adjusted figures, STG’s CEO Niels Frederiksen remains optimistic. He emphasized that the company continues to expand through retail growth, acquisitions, and diversifying its product portfolio. For the remainder of 2023, STG aims to capitalize on its strong online business and work on gaining more traction in its European operations. This indicates that while the immediate financials may be less than stellar, the company is actively engaged in strategies to foster long-term growth.
In summary, while Scandinavian Tobacco Group’s recent performance could be interpreted as a slowdown, it may also be viewed as a market correction from an unusually active period. The blend of external factors like currency fluctuations and internal changes like new store openings suggests that the market is still settling into a post-pandemic normal. Therefore, whether it’s a slowdown or a correction may largely depend on how STG and the industry at large adapt to the evolving landscape.
