U.S. consumer giants face a big sales problem: China | Real Time Headlines

BEIJING – One theme emerging from the latest wave of U.S. corporate earnings reports is the drag on the Chinese market.

China’s economy, which has more than four times the population of the United States, has been attracting multinational companies for decades because of its large and fast-growing market. But slowing growth and fierce local competition amid tensions with the United States are now putting pressure on corporate profits.

“Consumer confidence in China is quite weak,” McDonald’s Chairman, CEO and Director Christopher Kempczinski said of the quarter ended June 30.

“Both in our industry and across the broader consumer industry, consumers are very, very deal-seeking,” he added. “In fact, we’re seeing a lot of behavioral shifts among consumers, which is that regardless of what’s the best deal, That’s where they end up.”

McDonald’s says sales in its international development licensing market segment A decrease of 1.3% compared with the same period last year. The division includes China, where the company said sales fell but did not specify how much.

Chinese companies are also in trouble. National retail sales increased year-on-year Only 2% in June Started a year ago.

Raymond Lehman, China equity strategist at UBS Securities, said in a July report that profits from mainland China’s stock market, known as A-shares, may bottom out in the first quarter and may “recover moderately” in the second half of the year. Notice.

Several U.S. consumer giants also reflected the downward trend in their latest financial reports.

apple explain Sales decline in Greater China Annual growth was 6.5% in the quarter ended June 29. johnson and johnson It said China was a “very unstable market” and a major business unit that performed below expectations.

After a “strong start” to the year, general mills Chief Financial Officer Kofi Bruce said “consumer confidence did deteriorate or decline” in the quarter ended May 26, affecting traffic at Häagen-Dazs stores and the company’s “premium dumpling business.” Owned by General Mills Wan Chai Pier Dumpling brand.

Company China Organic Net Sales down double digits during this season.

Regional performance also affects a company’s long-term prospects.

In China, “we don’t expect to return to pre-pandemic (double-digit) growth rates.” P&G Chief Financial Officer Andre Schulten said on an earnings call last week. He expects China to achieve mid-single-digit growth over time, similar to developed markets.

Procter & Gamble said China sales fell 9% in quarter to end-June. Schulten said that despite China’s declining birth rate, the company’s baby care product sales increased by 6% and increased market share due to its localization strategy.

hotelier Marriott International Hotel Revenue per available room (RevPAR) growth forecast for this year was lowered to 3% to 4%, mainly due to expectations that Greater China will remain weak, as well as weak performance in the United States and Canada.

Marriott Greater China’s RevPAR fell about 4% in the quarter ended June 30, in part because Chinese people chose to travel abroad. Domestic recovery weaker than expected.

However, the company noted that a record number of projects were signed in China during the first half of this year.

McDonald’s has also confirmed its goal of opening 1,000 new stores in China every year.

Domino’s said Chinese operator DPC Dash aims to have 1,000 stores in China by the end of this year. Last week, DPC Dash said it had more than 900 stores as of the end of June and expected first-half revenue to grow at least 45% to 2 billion yuan ($280 million).

Coca Cola It pointed out that Chinese consumer confidence was “sluggish” and sales were declining, in sharp contrast to growth in Southeast Asia, Japan and South Korea. In the quarter ended June 28, net operating income in the Asia-Pacific region fell 4% annually to $1.51 billion.

“There is broad macroeconomic weakness as the overall economy is resolving some structural issues in real estate, pricing and more,” Coca-Cola Chairman and CEO James Quincey said in a note. Earnings Conference Call.

But he attributed the decline in China sales “entirely” to the company’s shift away from unprofitable water products in China toward sodas, juices and teas. “I think China’s sparkling wine sales are a little optimistic,” Quincey said.

Having to adapt to new product mixes and promotions is a common occurrence on U.S. corporate earnings calls.

“Over the past year, we have continued to face more cautious consumer spending and increased competition,” Starbucks CEO Laxman Narasimhan said in a statement Earnings Conference Call. “Unprecedented store expansion and mass-market price wars, at the expense of competition and profitability, have also wreaked havoc on the operating environment.”

Starbucks report China same-store sales drop 14% The decline was much higher than the 2% decline in the U.S. in the quarter ended June 30

Chinese rival Luckin Coffee, whose drinks are half the price of Starbucks, reported a 20.9% drop in same-store sales in the quarter ended June 30.

But the company claimed sales at those stores jumped nearly 40% to $863.7 million. Luckin Coffee has more than 13,000 self-operated stores, mainly in China.

Starbucks said revenue from its 7,306 stores in China fell 11% to $733.8 million in the same quarter.

Both companies face many competitors in China, coty coffee at the lower end to Pete’s At the high end. The only public disclosure about Pitt’s China operations describes it as “Strong double-digit organic sales growth“first half of this year.

Canadian goose Sales in Greater China grew 12.3% to CAD 21.9 million (USD 15.8 million) in the quarter ended June 30, the report said.

Sports shoe brands are also growing in China, and Warnings of future economic slowdown.

Nike Revenue in Greater China increased 7% annually in the quarter ended May 31, accounting for nearly 15% of its business.

“While our near-term outlook has weakened, we remain confident in Nike’s long-term competitive position in China,” said Matthew Friend, the company’s chief financial officer and executive vice president.

Adidas In the quarter ended June 30, revenue in Greater China grew 9%.

Chief Executive Bjorn Gulden said on an earnings call that Adidas is fighting for market share in China every month, but local brands face stiff competition. “Many of them are manufacturers and then retail directly through their own stores,” he said. “As a result, their speed and price value for consumers are not the same as they were before. We’re trying to adapt to that.”

Skechers In the three months ended June 30, the Chinese market grew by 3.4% year-on-year.

“We continue to believe China is on the road to recovery,” Skechers Chief Financial Officer John Vandermoor said on the earnings call. “We expect the second half of the year to be better than we have been so far, but We are monitoring the situation carefully.”

—CNBC’s Robert Hum and Sonia Heng contributed to this report.