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Americans keep spending more and more, but it seems like nothing can light a fire under Chinese shoppers.
That’s weighing on retailers that have sizable operations in the world’s second-largest economy.
Estée Lauder
(ticker: EL) cut its fiscal-year outlook Wednesday;
Canada Goose Holdings
‘ (GOOS) revenue fell short of expectations in its latest quarter; and
Yum China Holdings
(ticker: YUMC) missed third-quarter revenue and sales estimates. All said, demand among Chinese consumers was still soft.
“We are lowering our fiscal 2024 outlook given incremental external headwinds, namely from the slower growth in overall prestige beauty in Asia travel retail and in mainland China,” said
Estée Lauder
CEO Fabrizio Freda in a release Wednesday.
Many investors had hoped that China’s consumers would have shifted into overdrive by now, like U.S. shoppers did after exiting pandemic-era lockdowns. So far, however, China’s economic recovery has been sluggish and underwhelming.
While there are some signs the economy is stabilizing, consumer spending is still below prepandemic levels. In 2019, retail sales in China rose by 8% year-over-year. In 2022, sales were down 0.2% compared with the previous year. From January to September of this year, sales are up 6.8%.
Andy Yeung,
Yum China
‘s chief financial officer, said on a call with investors Tuesday that the company had seen softening demand in September and October.
“Consumers have become more value conscious,” he added.
Yum China and Estée Lauder’s warnings are especially worrisome, as they were issued less than two weeks away from Singles Day. The unofficial shopping holiday has rapidly become the world’s biggest 24-hour online sale—bigger than Black Friday and Cyber Monday combined, according to Coresight Research.
And indeed, shares of companies with large exposure to Chinese consumers were taking a hit Wednesday as investors and analysts fretted over the long-run implications of the latest earnings reports.
“The big question, like last quarter, and the one before it, will be: ‘is this the final cut?,’” Bernstein analyst Callum Elliott wrote in a note to clients, referring to Estée Lauder’s guidance cut.
Estée Lauder stock dived 18% in early morning trading, on track for its lowest close since August 2017, and possibly its largest one-day percent decrease on record, according to Dow Jones Market data.
Yum China’s stock tumbled 18%, and Canada Goose slid 9%. Other U.S. companies with large exposure to Chinese consumers were also trading lower.
Starbucks
stock (SBUX) was down 1.3%,
Nike
(NKE) fell 2%, and
Las Vegas Sands
(LVS) dipped 1.7%.
The
S&P 500
was up 0.5%.
Write to Sabrina Escobar at [email protected]
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