Why fund managers see green shoots in Treasury Wine Estates' China recovery

After a painful strategy reset and US inventory write-offs, Treasury Wine Estates is showing a sharp rebound in Penfolds depletions in China.

24 Jul 2026 · 6 min read

Winemaker Treasury Wine Estates spent much of late 2025 unwinding an overly ambitious China turnaround narrative, withdrawing FY26 guidance and pausing a planned $200 million share buyback after reporting excess channel inventory in both the US and China. Yarra Capital Management's December 2025 Monthly Report detailed depletion volumes hit by weak demand for flagship label Penfolds in China, with distribution disruptions in the US proving greater than expected, leaving the stock trading at what it called a significant valuation disconnect of 16.5 times FY26 earnings against a 22.9 times ten-year average.

A strategy reset, then genuine green shoots

Atlas Funds Management's January 2026 Article detailed the scale of the subsequent reset: a December 2025 strategy overhaul included a profit downgrade and write-offs of both inventory and the value of US acquisitions, with the manager noting around $2 billion invested in Californian wines since 2021 largely written off, alongside declining wine consumption across the US, China and Australia that may not reverse quickly. Atlas's December 2025 report was blunt about the underlying business quality beyond Penfolds, pointing to $2.5 billion of inventories it considers historically sketchy in quality, heavily weighted toward lower-end wine brands facing structural demand decline.

Penfolds depletions in China surged to +40% year/year, partly supported by a clampdown on parallel imports, but indicating that underlying demand in this key market is strong and accelerating.

— Pendal Group, Newsletter, April 2026

Pendal Group's April 2026 Newsletter detailed a marked turn in the data: Penfolds depletions, meaning end-point retail sales, in China surged 40% year on year, while American depletions rose 9%, a sharp reversal from a 3% decline in the prior December half, suggesting the US distributor disruption may be easing. Pendal also flagged the company had raised $300 million of fresh debt covering FY27 maturities, removing near-term equity raising risk. Paradice Investment Management's April 2026 Monthly Report welcomed the update while noting it had maintained a reduced position size, viewing the initial signs of improvement as encouraging but wanting further evidence before adding back.

What managers are watching next

Ten Cap's December 2025 Article captured the cautious optimism many managers now hold, rating the stock a buy on the view that easing Chinese lunchtime drinking restrictions could support a genuine, if modest, recovery over the following 12 months, even amid structurally declining alcohol consumption among younger consumers globally. With Pendal Group noting a US distributor sale to Reyes Group should reduce disruption risk compared with the earlier RNDC exit from California, the durability of the China depletion surge and the pace of the US recovery remain the two threads managers are tracking most closely.