Johnnie Walker Maker Diageo Warns U.S. Turnaround Will Take Time — 2nd Update

By Joshua Kirby

Diageo's chief executive officer said efforts to turn around performance in the U.S. will take time to bear fruit, as some of the spirits giant's biggest labels continue to sell poorly among American drinkers.

The London-listed maker of Smirnoff vodka, Johnnie Walker whisky and George Clooney's Casamigos tequila said Thursday that U.S. sales fell 3.7% on year over the July-September period, the first quarter of the company's fiscal year. That reflected "continued market softness," Diageo said.

It will take up to a year for fresh investment to translate into higher sales for some of the group's struggling brands, CEO Dave Lewis said in a call following the sales update.

Installed as CEO at the beginning of the year, Lewis this summer identified three brands--Crown Royal whisky, Smirnoff and Captain Morgan rum--that were losing market share and that the group wanted to revive. The company directed money into marketing efforts, sponsorships and launches of new product formats like canned premixed drinks. Diageo expects a 12-month lead time for those efforts to pay off, Lewis said.

"There's a lot of change happening at Diageo," he added.

The U.S. booze market has suffered in recent years from flagging demand as drinkers look to cut back for the good of their health and their wallets, and Diageo has seen some of its big brands lose share in a hotly competitive market.

"In North America, we continue to focus on making our offer more competitive, and whilst this remains our biggest challenge, clear actions are under way," Lewis said.

Some of Diageo's biggest brands in North America, including Don Julio tequila and Casamigos, continued to book sharp sales declines over the quarter. In ready-to-drink products like canned cocktails, one of the industry's fastest growing areas, Diageo said a quality issue with Casamigos packaging had weighed on performance.

Still, results in the first quarter "represent a small step in the right direction," Lewis said. Johnnie Walker sales rose in North America, as did those of Guinness stout and Smirnoff Ice. Overall sales in the region are likely to decline over the year as a whole, but Diageo's brands should gain back some market share from a year earlier, the company said.

Reversing a previous focus on the higher end of the market looks to be a successful strategy for Diageo under Lewis's stewardship, AJ Bell markets head Dan Coatsworth wrote. Still, that doesn't mean the job is done, Coatsworth said.

"While the key North American market saw sales decline less than anticipated, they are still on a downwards trajectory," he said. "The lingering concern for shareholders, like a hangover you just can't shake, will be that shifting drinking habits among younger people will have a long-term impact on demand."

Lewis has previously identified the U.S. as central to restoring Diageo's momentum, focusing efforts on getting some juice back into its sales in the key market. The company has lost more than half its share value over the last five years amid declining booze sales that have also weighed on other distillers, from Jack Daniel's maker Brown-Forman to Pernod Ricard, the French group behind Absolut vodka and Jameson whiskey.

A drop in North America, Diageo's largest market by sales, was offset by organic growth in all other regions, including EMEA, Asia-Pacific and India. Total sales rose 1.4% on an organic basis to $4.93 billion over the quarter. Analysts had expected sales to lose 0.4% organically to $4.805 billion, according to an average of estimates compiled by the company ahead of the release.

The quarter was "less bad than expected" in the U.S. market, analyst James Edwardes Jones at RBC Capital Markets wrote following the update.

"This was a decent first quarter," he said.

The company backed its guidance for the full year, with organic sales expected to be flattish and operating profit to increase in the single digits, boosted by a chunk of the $1 billion cost-savings program that Lewis set out this summer.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

November 05, 2026 06:41 ET (11:41 GMT)