American consumer giants have a big sales problem: China

BEIJING — One theme emerging from the latest earnings reports from U.S. companies is the negative impact of the Chinese market.

China’s economy, home to more than four times the population of the United States, has attracted multinationals for decades, given its large and fast-growing market. But slower growth and intense local competition, amid tensions with the United States, are now weighing on corporate profits.

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

“You’re seeing a consumer that is very, very bargain-hunting in our industry and across a broad range of consumer industries,” he added. “In fact, we’re seeing a lot of behavioral changes in terms of consumers, whatever the best deal is, that’s where they end up going.”

McDonald’s said sales for its International Markets Development License segment fell 1.3% from a year ago. The unit includes China, where the company said sales fell but did not say by how much.

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

In mainland China’s stock market, known as A shares, earnings likely bottomed out in the first quarter and may “rebound slightly” in the second half of the year, Lei Meng, China equity strategist at UBS Securities, said in a July 23 note.

Several US consumer goods giants have reiterated their downward trend in their latest financial reports.

Apple said sales in Greater China fell 6.5 percent year-on-year in the quarter ended June 29. Johnson and Johnson He said China is a “very volatile market” and an important business segment that has performed below expectations.

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

During the quarter, the company’s organic net sales in China declined by double digits.

Regional results also impact the company’s long-term prospects.

In China, “we do not expect a return to [double-digit] growth rates we saw before Covid,” Procter & Gamble CFO Andre Schulten said on a financial results 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 for the quarter ended June fell 9%. Despite the decline in births in China, Schulten said the company was able to increase sales of baby care products by 6% and increase market share thanks to a localization strategy.

Hotel Manager Marriott International cut its revenue per available room (RevPAR) growth forecast for the year to 3-4%, largely due to expectations of weakness in Greater China and weaker performance in the U.S. and Canada.

Marriott’s Greater China RevPAR fell about 4% in the quarter ended June 30, partly due to Chinese consumers choosing to travel abroad, as well as a weaker-than-expected domestic recovery.

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

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

Domino’s 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 expected first-half revenue to grow at least 45% to 2 billion yuan ($280 million).

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

“There is overall macroeconomic weakness as the economy as a whole is going through some structural issues related to housing, pricing, etc.,” Coca-Cola Chairman and CEO James Quincey said in a financial results conference call.

But he attributed the volume decline in China “entirely” to the company’s shift from unprofitable water products in the country to sparkling water, juices and teas. “I think sparkling volume was a little positive in China,” Quincey said.

Having to adapt to a new mix of products and promotions was a common occurrence on U.S. corporate earnings conference calls.

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

Starbucks reported that same-store sales in China fell 14% in the quarter ended June 30, much steeper than the 2% decline in the U.S.

Chinese competitor Luckin Coffee, whose drinks can cost half as much as Starbucks, reported a 20.9% decline in sales at traditional stores in the quarter ended June 30.

But the company said sales from those stores jumped nearly 40% to the equivalent of $863.7 million. Luckin has more than 13,000 self-operated stores, mostly in China.

Starbucks said its 7,306 stores in China saw revenue decline 11 percent to $733.8 million in the same quarter.

Both companies face a lot of competition in China, from Cotti Coffee at the low end to Peet’s at the high end. The only public disclosures about Peet’s China business described it as reporting “strong double-digit organic sales growth” in the first half of the year.

Not all major consumer goods brands have reported such difficulties.

Canadian Goose reported that sales in Greater China grew 12.3% to C$21.9 million ($15.8 million) in the quarter ended June 30.

Athletic shoe brands also reported growth in China, although they expected a slowdown to come.

Nike reported 7% year-over-year growth in Greater China revenue, accounting for nearly 15% of its business, for the quarter ended May 31.

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

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

CEO Bjorn Gulden said on an earnings call that Adidas was taking market share in China every month, but local brands were posing stiff competition. “A lot of them are manufacturers that then go directly to retail with their own stores,” he said. “So their speed and the value of the price that they have for that consumer is different than it was before. And we’re trying to adapt to that.”

Shoes recorded annual growth of 3.4% in China in the three months ended June 30.

“We continue to think China is on the road to recovery,” Skechers CFO John Vandemore said in an earnings call. “We expect the second half of the year to be better than what we’ve seen so far, but we’re watching things closely.”

— Vscek’s Robert Hum and Sonia Heng contributed to this article.