Pedestrians walk past Yum! Brands Inc. Pizza Hut and KFC restaurants in Shanghai, China.
Qilai Shen | Bloomberg | Getty Images
China is emerging from pandemic lockdowns and US companies are liking it Procter & Gamble, Starbucks And MGM Resorts International say the country’s recovery is boosting their overall sales as consumers watch their wallets in their home markets.
With its large population and growing middle class, China is a desirable market for many multinationals whose US operations have matured. But its zero-Covid policy, which imposed tough restrictions to stop the spread of the virus, hurt the country’s economy – and the revenues of the many US companies that sell their goods or services there.
China’s economy grew 4.5% in the first quarter after the policy rollback in December. US companies are reporting that demand is returning in China, boosting sales at a time when many US consumers are cutting back on spending.
However, the recovery was not as quick and dramatic as many investors had hoped. Most companies are still waiting to surpass pre-pandemic sales in China. Travel retail is taking even longer to get back on its feet. And apples Sales declined in the China region, which includes the mainland, Hong Kong and the nearby self-governing island of Taiwan.
Morgan Stanley analyst Kelly Kim wrote in a research note that the company’s China consumer team expects the recovery to come in three phases: a spring break from February to April, summer “revenge spending” from May to July and a stable recovery from August .
Restaurants are recovering
US-based restaurants were among the businesses where demand returned in China. But sales haven’t returned to 2019 levels yet.
Starbucks reported that same-store sales in China rose 3% last quarter, reversing the decline. Some Wall Street analysts still expected same-store sales for the company’s second-biggest market to fall.
A year earlier, the coffee giant suspended its outlook for the year, citing lockdowns in China as one reason for the decision. During the quarter, Starbucks same-store sales in China fell 23%.
Yummy China, Yum Brands’ The master franchisee in China also said its same-store sales rose 8% in the first quarter. China is KFC’s largest market and Pizza Hut’s second largest.
“We benefited from the increasing mobility and recorded a growth of over 40% on the transport and tourist level. However, first-quarter same-store sales at those locations were still 20% to 30% below 2019 levels,” Yum China CEO Joey Wat told analysts on the company’s conference call.
Travel inspires parks and casinos
Tourists pose for a photo at Shanghai Disney Resort as the resort kicked off a month of festivities to celebrate the upcoming Chinese New Year from January 13 to February 10.
China News Service | China News Service | Getty Images
Chinese consumers also appear to be traveling and visiting theme parks and casinos again as restrictions are lifted. The rise in travel and leisure spending benefited a number of US companies earlier in the year.
Disney announced “improved financial results” at its Shanghai and Hong Kong resorts.
“We were really pleased to see the recovery from the pandemic shutdowns that we’ve had,” Disney CFO Christine McCarthy told analysts on the company’s conference call Wednesday.
Macau, the world’s largest gambling hub, has seen a resurgence in tourists after testing requirements for travelers from the mainland, Hong Kong and Taiwan were lifted. Tourism peaked during the New Year holidays at the end of January.
MGM Resorts International operates MGM Cotai and MGM Macau venues in the region. Earlier this month, the casino giant reported a quick return to profitability as traffic at its Chinese casinos returns to pre-pandemic levels. In the first quarter, China real estate generated adjusted income of $169 million, or 88% of the division’s adjusted income four years ago.
Airbnb announced that the Asia Pacific division saw its largest year-over-year growth in nights and experiences booked for the most recent quarter. The company closed its domestic operations in China in 2022, closing all mainland offerings to instead focus on helping Chinese consumers find accommodation abroad.
“We are encouraged by China’s recent lifting of travel restrictions, although we expect the overseas recovery to be slow due to the challenges with limited flight capacity,” the company wrote in its quarterly letter to shareholders.
While many US-based companies are benefiting from China’s recovery, companies are still waiting for the same recovery in travel retail.
SK-II, a luxury skincare brand owned by Procter & Gamble, saw sales recover in China, excluding the travel retail segment. Overall, Procter & Gamble’s China organic sales rose 2%. As consumers become more mobile, the consumer goods giant expects sales to increase even more.
Scott Roe, CFO of tapestry, the parent company of Coach, Kate Spade and Stuart Weitzman, said Thursday that the company could see an uptick in domestic traffic in China, including Hong Kong and Macau. Still, he added that global Chinese tourism is below pre-pandemic levels – and said the potential for more travel could open up opportunities.
At its larger unit in China, Tapestry expects sales to grow in the mid-single digits for the fiscal year, including an expected increase of about 50% in the next quarter. The company’s sales momentum in China is helping offset weakness in the US as consumers in North America become more cautious.
Although many companies are struggling with travel retail in China, at least one company is already seeing its sales at duty-free shops and tourist destinations recover.
beauty giant coty said there was a return in consumer traffic to retailers, citing more flights to the tropical island and Hainan shopping district, where dozens of stores are located. The Franco-American company owns Covergirl, the beauty lines of Kylie Jenner and a number of designer perfume and cosmetics brands. Coty’s travel retail sales rose more than 30% in the quarter.
An oversupply of inventory weighed on Coty’s China sales last quarter, but April sales were still higher than the same period last year and two years earlier.
Korinne Wolfmeyer, an analyst at Piper Sandler, named the company one of her favorite cosmetics stocks in a note to clients following Coty’s quarterly earnings report. She partially cited the performance in China.
“We remain cautiously optimistic on the beauty market in China in the near term, but specifically for COTY, we see the company’s strategic investments in the region and major product launches as drivers for the market to outperform,” she wrote.
— CNBC’s Melissa Repko and Stefan Sykes contributed coverage to this story.