February 21, 2024

Pedestrians walk by Yum! Brands Inc. Pizza Hut and KFC restaurants in Shanghai, China.

Shen Qilai | Bloomberg | Getty Images

China Is Emerging from Pandemic Lockdown, and U.S. Companies Love It Procter, Starbucks and MGM Resorts International said the recovery in the country is boosting their overall sales as consumers in their home market look after their wallets.

With its large population and growing middle class, China is an ideal market for many multinational companies with established U.S. operations. But its zero-Covid policy imposed severe restrictions to stem the spread of the virus, hurting the country’s economy — and the revenues of many U.S. companies that sell goods or services in the country.

China’s economy grew 4.5% in the first quarter after rolling back policy in December. U.S. companies reported that demand in China was picking up, boosting their sales even as many U.S. consumers scaled back spending.

However, the recovery has not been as quick or as dramatic as many investors had hoped. Most companies are still waiting to surpass their pre-pandemic sales in China. The travel retail sector will take longer to rebound.and apple Sales fell in mainland China, 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 firm’s China consumer team expects the recovery to take place in three phases: the spring break from February to April, and the summer “retaliatory” period from May to July. spending,” and the steady recovery that began in August.

Restaurant Bounce

Tourism Promotion Parks and Casinos

Visitors pose for photos at Shanghai Disney Resort, which kicked off a month-long celebration from Jan. 13 to Feb. 10 to mark the upcoming Chinese New Year.

China News Service | China News Service | Getty Images

Chinese consumers also appear to be traveling again as restrictions are lifted, visiting theme parks and casinos. Higher spending on travel and leisure helped a range of U.S. companies early in the year.

disney boasted of “improved financial performance” at its Shanghai and Hong Kong resorts.

“We’re really excited about our recovery from the pandemic shutdown,” Disney Chief Financial Officer Christina McCarthy told analysts on a company conference call Wednesday.

Macau, the world’s biggest gaming hub, has seen a resurgence in tourists after testing requirements were lifted for incoming travelers from the mainland, Hong Kong and Taiwan. Tourism peaks during the Lunar New Year holiday at the end of January.

MGM Resorts International operates the MGM Cotai and MGM Macau venues in the area. Earlier this month, the casino giant reported a swift return to profitability as traffic at its Chinese casinos reached pre-pandemic levels. Its properties in China generated $169 million in adjusted earnings in the first quarter, or 88% of the unit’s adjusted earnings four years ago.

Airbnb In the most recent quarter, its Asia-Pacific region saw the largest year-over-year growth in accommodation and experience bookings, the company said. The company closed its domestic operations in China in 2022, shuttering all mainland-listed companies and focusing instead on helping Chinese consumers find homes abroad.

“While we expect the outbound recovery to be gradual due to the challenges of limited flight capacity, we are encouraged by the recent lifting of travel restrictions in China,” the company wrote in its quarterly letter to shareholders.

While many U.S. businesses are benefiting from China’s recovery, businesses are still waiting for the same to happen in travel retail.

SK-II, the luxury skincare brand owned by Procter & Gamble, has seen sales rebound in China, but its travel retail business is a notable exception. Overall, P&G’s organic sales in China rose 2%. The consumer packaged goods giant expects revenue to rebound further as consumers become more mobile.

Scott Roe, Chief Financial Officer tapestryThe parent company of Coach, Kate Spade and Stuart Weitzman said on Thursday it had started to see an increase in domestic travel in China, including Hong Kong and Macau. However, he added that China’s global tourism industry was below pre-pandemic levels – and suggested that the potential for more travel could present future opportunities.

In its Greater China region, Tapestry expects revenue growth in the mid-single digits for the current fiscal year, including an expected increase of about 50% in the next quarter. The company’s sales momentum in China is helping to offset weakness in the U.S. as North American consumers become more cautious.

While many companies have struggled in China’s travel retail business, at least one company has seen its sales rebound in duty-free stores and tourist destinations.

beauty giant Coty said it had seen consumer traffic return to retailers, noting more flights to the tropical island and shopping district of Hainan, where dozens of stores are located. The French-American company owns Covergirl, Kylie Jenner’s beauty line, and a line of designer fragrance and cosmetics lines. Coty’s travel retail sales were up more than 30% during the quarter.

A glut of inventory weighed on Coty’s sales in China in the latest quarter, but sales in April were still higher than a year earlier and two years ago.

Piper Sandler analyst Korinne Wolfmeyer called Coty one of her favorite beauty stocks in a note to clients after its quarterly earnings report. She cited in part its performance in China.

“We remain cautiously optimistic about the Chinese beauty market in the near term, but for COTY in particular, we see the company’s strategic investments and major product launches in the region as drivers of the market’s outperformance,” she wrote.

——CNBC Melissa Repko and Stefan Sykes contributed reporting to this story.