Diageo reported fiscal 2026 results on August 6 showing net sales down for the year ended June 30, with the company's tequila portfolio and its Chinese baijiu business named as the two biggest drags on performance. Reported net sales fell to roughly 19.6 billion dollars, a decline on both a reported and organic basis, according to coverage from The Spirits Business and Shanken News Daily. The fourth quarter alone saw sales slip about 2 percent to just over 4.7 billion dollars.
The results, released alongside a Capital Markets Day, arrived with a cost cutting program targeting roughly 1 billion dollars in savings over three years, according to The Spirits Business and an equity note from Hargreaves Lansdown. Diageo also cut its dividend and booked more than 2.5 billion dollars in exceptional charges tied to impairments and restructuring, according to reporting from Whiskey Wash and Shanken News Daily.
Tequila's reversal
The scale of the tequila slowdown is the headline number for this trade. Diageo's tequila category grew by double digits in both volume and organic net sales in fiscal 2025. In fiscal 2026, organic net sales for the category fell approximately 16 percent, according to The Spirits Business. Within the United States specifically, Diageo's own earnings call materials put the tequila decline closer to 21 percent, according to a Yahoo Finance recap of the earnings call. Don Julio net sales fell 19.2 percent for the year on a roughly 10 percent drop in depletions, while Casamigos fell 27.7 percent on a 23 percent depletions decline, per Shanken News Daily's reporting on the results. That is a sharp reversal from fiscal 2025, when Don Julio grew nearly 42 percent and Casamigos was already declining by about 18 percent, according to The Spirits Business. Diageo has said it will cut US prices on Casamigos and launch a new marketing push to try to rebuild the brand's footing.
A second front in China
Baijiu has compounded the problem. Diageo holds a majority stake, north of 63 percent, in Sichuan Swellfun, maker of the Shui Jing Fang brand, and Chinese white spirits sales have been in double digit decline for multiple consecutive quarters, worsened by government restrictions on alcohol at official functions. Bloomberg reported in January that Diageo was exploring a sale of the stake, working with Goldman Sachs and UBS to gauge buyer interest, according to reporting picked up by The Spirits Business and Vino Joy. Diageo executives, including chief executive Dave Lewis and chief financial officer Nik Jhangiani, have publicly called divestment talk speculation and said the company would not sell brands below fair value, per Yicai Global's account of the February earnings call. Whether that stance survives a full year of double digit baijiu declines, some outlets have put the drop as high as 47 percent for fiscal 2026, is one of the open questions for the year ahead.
The purity question sitting underneath the numbers
Diageo's tequila slide is not happening in a vacuum. A class action filed in May 2025 in the US District Court for the Eastern District of New York alleges that Don Julio and Casamigos are not 100 percent agave as labeled, and that private testing found substantial concentrations of non-agave alcohol, according to reporting from The Spirits Business and Food & Wine. Diageo has denied the allegations and moved to dismiss the case, and has said its products meet all Mexican and US regulatory standards. On our own blind panel, Don Julio's Blanco, Reposado and 1942 expressions score in the mid 80s, and Casamigos scores lower still across its Blanco, Reposado and Añejo line, all currently listed as unverified in our purity database because Diageo has not published independent lab documentation supporting a 100 percent agave claim beyond CRT certification. That gap between courtroom allegation and verified lab data is exactly the kind of uncertainty this litigation was designed to force into the open, and it now sits alongside a commercial downturn that Diageo's own executives have linked partly to consumer sentiment around additives and adulteration claims.
What changes for buyers
For distributors and retailers, the immediate change is pricing. Diageo has already begun cutting US shelf prices on Casamigos as part of its repositioning effort. For competitors in the premium and ultra premium tier, a pullback from two of the category's largest volume drivers creates room, though the same category softness and down trading pressure Diageo cites applies broadly, not just to its own brands. For anyone weighing a bottle on the strength of a marketing story rather than a lab result, the current gap between courtroom claims and confirmed testing is worth sitting with before assuming either side of the dispute.
What we are watching
The docket in the Eastern District of New York class action against Diageo North America, including any ruling on the pending motion to dismiss. Whether Diageo actually sells its Sichuan Swellfun stake or continues to hold it through the baijiu downturn. Depletion data for Casamigos and Don Julio through the next two quarters, to see whether US price cuts and new marketing arrest the volume slide. Any independent lab disclosures from Diageo on agave content for Don Julio or Casamigos that would change their status in our own database.