China – NBC 6 South Florida

• Starbucks said same-store sales in China fell 14% in the quarter ended June 30, a much bigger decline than the 2% decline in the U.S.
• “Consumer sentiment in China is pretty weak,” Christopher Kempczinski, McDonald’s chairman, CEO and director, said of the quarter ended June 30.
• After a “strong start” to the year in China, General Mills Chief Financial Officer Kofi Bruce said the quarter ended May 26 “saw a real deterioration or decline in consumer sentiment.”

BEIJING — A common theme in the latest earnings reports from American companies is the declining value of the Chinese market.

China’s economy — home to more than four times the population of the U.S. — has attracted multinational corporations for decades because of its large, fast-growing market. But slower growth and intense domestic competition, amid tensions with the U.S., are now weighing on corporate profits.

“Consumer sentiment in China is pretty weak,” Christopher Kempczinski, McDonald’s chairman, CEO and director, said of the quarter ended June 30.

“You see that in our industry and across a broad spectrum of consumer industries, where consumers are very, very much looking for deals,” he added. “In fact, we’re seeing a lot of behavior changing with regard to consumers themselves, whatever the best deal is, that’s where they’re going.”

McDonald’s said sales in its international licensed markets business in development fell 1.3% from a year earlier. The unit includes China, where the company said sales fell but didn’t specify by how much.

Chinese companies are also struggling. Nationwide retail sales rose just 2% in June from a year earlier.

On the mainland China stock exchange, known as the A-share market, earnings are likely to bottom out in the first quarter and could “rebound modestly” in the second half of the year, Lei Meng, China equities strategist at UBS Securities, wrote in a July 23 note.

Several US consumer giants confirmed the downward trend in their latest earnings reports.

Apple said sales in China fell 6.5% year over year in the quarter ended June 29. Johnson and Johnson said China is a “very volatile market” and an important business segment that underperformed expectations.

After a “strong start” to the year, General Mills Chief Financial Officer Kofi Bruce said the quarter ending May 26 “saw a real deterioration or decline in consumer sentiment,” which hurt traffic at Haagen-Dazs stores and the company’s “premium dumpling business.” General Mills owns the Wanchai Ferry dumpling brand.

The company’s net sales of organic products in China fell by several percent this quarter.

Regional performance also has an impact on long-term business prospects.

In China, “we don’t expect to see a return to the (double-digit) growth rates we saw before the COVID-19 pandemic,” Procter and Gamble Chief Financial Officer Andre Schulten said on an earnings conference call last week. He expected China to improve to mid-single-digit growth over time, similar to developed markets.

Procter and Gamble said sales in China fell 9% in the quarter ended in late June. Schulten said that despite the decline in birth rates in China, the company was able to increase sales of baby care products by 6% and gain market share thanks to its localization strategy.

Hotel operator Marriott International lowered its revenue per available room (RevPAR) growth forecast for this year to 3%-4%, largely on expectations that China will remain weak, as well as weaker performance in the U.S. and Canada.

Marriott’s RevPAR in China fell about 4% in the quarter ended June 30, partly due to Chinese customers opting to travel abroad amid a weaker-than-expected economic recovery at home.

However, the company noted that it signed a record number of contracts in China in the first half of the year.

McDonald’s also reaffirmed its goal of opening 1,000 new stores in China per year.

Domino’s has said its Chinese operator, DPC Dash, aims to have 1,000 stores in the country by the end of the year. Last week, DPC Dash said it had just over 900 stores at the end of June and that it expected revenue in the first half of the year to rise by at least 45% to 2 billion yuan ($280 million).

Local competition

Coca-Cola reported “subdued” consumer confidence in China, where volumes fell in contrast to growth in Southeast Asia, Japan and South Korea. Asia-Pacific net operating income fell 4% year over year to $1.51 billion in the quarter ended June 28.

“Overall, the economy is dealing with structural issues related to real estate, pricing, etc.,” James Quincey, Coca-Cola’s chairman and CEO, said on a conference call discussing earnings.

But he attributed the decline in China volumes “completely” to the company’s shift from underperforming water products in the country to sparkling water, juices and teas. “I think carbonated volumes were slightly positive in China,” Quincey said.

The need to adapt to a new set of products and promotions was a common occurrence at press conferences for American companies.

“We have continued to face more cautious consumer spending and increased competition over the past year,” Starbucks CEO Laxman Narasimhan said on a conference call about financial results. “Unprecedented store expansion and a price war in the mass segment at the expense of competitiveness and profitability have also caused significant disruption to the operating environment.”

Starbucks said same-store sales in China fell 14% in the quarter ended June 30, a much bigger decline than the 2% decline in the U.S.

Chinese rival Luckin Coffee, whose drinks can cost half the price of a Starbucks drink, saw same-store sales fall 20.9% in the quarter ended June 30.

However, the company said sales at those stores rose nearly 40% to the equivalent of $863.7 million. Luckin has more than 13,000 independently operated stores, mostly in China.

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

Both companies have a lot of competitors in China, from Cotti Coffee at the lower end to Peet’s at the higher end. The only public disclosures about Peet’s China business describe it as having “strong double-digit organic sales growth” in the first half of the year.

Bright spots

Not all major consumer brands reported such difficulties.

Canada Goose said sales in China rose 12.3% to C$21.9 million ($15.8 million) in the quarter ended June 30.

Sports footwear brands also reported growth in China, while warning of a coming slowdown.

Nike reported 7 percent year-over-year revenue growth in China — nearly 15 percent of its business — in the quarter ended May 31.

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

Adidas reported 9% revenue growth in China in the quarter ended June 30. The region accounts for about 14% of the company’s total net revenue.

CEO Bjorn Gulden said on a conference call about the results that Adidas is gaining market share in China every month, but that local brands are fierce competitors. “A lot of them are manufacturers that go straight to retail in their stores,” he said. “So their speed and their price point for that consumer was different than before. And we’re trying to adjust to that.”

Skechers reported a 3.4% year-over-year increase in sales in China in the three months ended June 30.

“We continue to believe China is on the path to recovery,” Skechers Chief Financial Officer John Vandemore said on an earnings conference call. “We expect a stronger second half than we’ve seen to date, but we’re watching the situation closely.”

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