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Pedestrians walk through Yum! Brands Inc, Pizza Hut and KFC restaurants in Shanghai, China.
Kylie Shen | bloomberg | Getty Images
China is letting go of pandemic lockdowns, like American companies Procter & GambleAnd Starbucks And MGM Resorts International He says the country’s recovery is boosting their overall sales as consumers in their home markets watch their wallets.
With its large population and bloating middle class, China is a desirable market for many multinational companies that have seen their business grow in the United States. But the no-Covid policy, which imposed severe restrictions to stop the spread of the virus, has hurt the country’s economy — and the revenues of many American companies that sell their goods or services there.
After backtracking on policy in December, China’s economy grew 4.5% in the first quarter. US companies have reported a return to demand in China, boosting their sales at a time when many US consumers are cutting back on their spending.
However, the recovery has not been as quick or dramatic as many investors had hoped. Most companies are still waiting to surpass pre-epidemic sales in China. The travel retail sector is taking longer to bounce back. And apples Sales fell in the China region that includes the mainland, Hong Kong and the neighboring self-ruled island of Taiwan.
Morgan Stanley analyst Kelly Kim wrote in a research note that the consumer team in China expects the recovery to come in three phases: spring break in February through April, summer “revenge spending” in May through July, and a stable recovery starting in August. .
Restaurants are reviving
US-based restaurants were among the companies that saw demand return in China. But sales haven’t returned to 2019 levels yet.
A year ago, the coffee giant shelved its outlook for the year, citing lockdowns in China as one of the reasons for the decision. In that quarter, Starbucks store sales in China fell 23%.
Yum ChinaAnd yum brands The master franchisor in China, also said same-store sales grew 8% in the first quarter. China is Kentucky Fried Chicken’s largest market and Pizza Hut’s second largest.
“We benefited from increased mobility and experienced 40% surplus growth in transit and in tourists. However, same-store sales in these locations in the first quarter remained 20% to 30% below 2019 levels,” Yum CEO says. China Joey Wat to analysts on the company’s phone call.
Travel promotes theme parks and casinos
Tourists pose for a photo at Shanghai Disney Resort as the resort kicked off a month of celebrations from January 13 to February 10 to celebrate the upcoming Chinese New Year.
China News Service | China News Service | Getty Images
It also appears that Chinese consumers are traveling again as restrictions are lifted, visiting theme parks and casinos. A host of US companies were helped by an increase in spending on travel and leisure at the start of the year.
Disney It promoted “improving financial results” at its resorts in Shanghai and Hong Kong.
“We’ve been really pleased to see the recovery from the pandemic shutdowns that we’ve seen,” Christine McCarthy, Disney’s chief financial officer, told analysts Wednesday on the company’s conference call.
Macau, the world’s largest gambling hub, has seen a resurgence of tourists after testing requirements for inbound travelers from the mainland, Hong Kong and Taiwan were scrapped. Tourism peaks during the Lunar New Year holiday in late January.
MGM Resorts International operates MGM Cotai and MGM Macau locations in the region. Earlier this month, the casino giant reported a quick return to profitability as traffic at Chinese casinos reached pre-pandemic levels. In the first quarter, its China properties generated adjusted earnings of $169 million, or 88% of the division’s adjusted earnings four years ago.
Airbnb She said the Asia Pacific division last quarter saw its largest year-over-year growth in nights and experiences booked. The company shut down its domestic business in China in 2022, closing all property listings on the mainland to focus on helping Chinese consumers find housing abroad instead.
“We are encouraged by China’s recent lifting of travel restrictions although we expect the recovery to be gradual due to challenges with limited flight capabilities,” the company wrote in its quarterly letter to shareholders.
While many US-based companies are benefiting from China’s recovery, companies are still waiting to see the same recovery in travel retail.
SK-II, a luxury skincare brand owned by Procter & Gamble, has seen its sales rebound in China, excluding its travel retail segment. Overall, Procter & Gamble’s organic sales were up 2% in China. With consumer traffic picking up, the consumer packaged goods giant expects an even bigger rebound in revenue.
Scott Rowe, Chief Financial Officer, Inc textureCouch’s father, Kate Spade and Stuart Weitzman, said Thursday that the company has begun to see an uptick in domestic Chinese travel, including in Hong Kong and Macau. However, he added that global Chinese tourism is below pre-pandemic levels – and said the prospect of more travel could bring opportunities in the future.
At its largest unit in China, Tapestry expects mid-single-digit revenue gains 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 United States, as North American consumers have become more cautious.
Although many companies are struggling with travel retail in China, at least one company is already seeing its sales bounce back at duty free and tourist destinations.
cosmetic giant cutie It said it has seen consumer traffic return to retailers, and noted more flights to the tropical island and Hainan shopping district, where it has dozens of stores. The French-American company owns Covergirl, Kylie Jenner’s beauty lines, and a wide range of perfume and cosmetic brands. Coty’s travel retail sales increased more than 30% in the quarter.
Inventory abundance affected Coty’s sales in China in its most recent quarter, but April sales were still higher than both the year-ago period and the two years prior.
Piper Sandler analyst Corinne Wolfmeyer called the company one of her favorite beauty stocks in a note to clients following Coty’s quarterly earnings report. It cited, in part, its performance in China.
“We remain cautiously optimistic about China in terms of the near-term cosmetics market, but for COTY specifically, we view the company’s strategic investments in the region and key product launches as a driver of outperforming market,” she wrote.
CNBC channel Melissa Rybko And Stephen Sykes Contribute to this story.
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