U.S. companies, including Nike and Tesla, have been buoyed by strong results from China; ‘a model of recovery’

SHANGHAIChina has long been an important destination for U.S. companies. In the June quarter, the worlds second-largest economy became a vital refuge for many of them as Chinas rebounding consumer economy helped offset the damage from tumbling sales back home.In earnings calls for the quarter, senior executives from some of Americas best-known brands singled out China for salvaging what otherwise was a rough three months.China offered a model of recovery, stabilization and then growth, David Weinberg, chief operating officer of
Skechers USA Inc.,
told analysts on a late July earnings call. Overall, the sneaker companys quarterly sales dropped 42% from a year earlier but were bolstered in part by 11.5% growth in China.
Most consumer segments in China had returned to growth by June.
Chinas retail sales by segment,
change from a year earlier
Source: National Bureau of Statistics
Chinese retail sales rebounded more strongly in the April-to-June period than most analysts had been predicting earlier in the year, falling just 3.9% from the same time last year. That compared with a much steeper 19% drop in the first quarter, when large parts of China were locked down to prevent the spread of the coronavirus. U.S. retail sales, by comparison, declined 8.1% in the second quarter in year-over-year terms, according to the Census Bureau.
Despite rising political tensions between Washington and Beijing, American brands have suffered little commercial fallout among Chinese consumers, enabling them to capitalize on the economic rebound in China.
The gulf between China and the rest of the world was widest in the luxury sector. For LVMH Moët Hennessy Louis Vuitton SE, China was a very good offset for the rest of the business, which is suffering, Chris Hollis, the head of investor relations, said on his companys earnings call. While LVMH revenue fell 38% year over year in the April-to-June period, China jumped 65%, a surge driven by Chinese luxury consumers trading foreign shopping sprees for local buying runs because of travel restrictions.
Gucci owner
Kering SA
reported similar results: Quarterly sales at its luxury brands fell 43% year over year but increased by more than 40% in China.
With the virus largely under control in China, many analysts expect retail sales to return to yearly growth in the third quarter, even as the U.S. and other Western countries struggle to control new outbreaks and fully reopen their economies. The Economist Intelligence Unit had said as recently as April that Chinese retail sales wouldnt grow again before 2021; now it forecasts 1% yearly growth this quarter, followed by 2.4% growth in the final three months of the year.
The Chinese economy expanded 3.2% from a year earlier in the second quarter, and could be the only major global economy to grow in 2020. WSJ’s Jonathan Cheng explains the country’s strategy to front-load the economic pain in the early stages of the pandemic. Photo: Alex Plavevski/Shutterstock
Though consumption has rebounded, headwinds remain in China. Unemployment levels, which surged to a record high earlier this year, are tapering off, but the jobs being created are mainly low-paying and temporary and arent boosting peoples spending power, said Dan Wang, an analyst at the EIU. She predicted that the damage to income is likely to serve as a longer-term drag on some consumer segments.
In addition, three consumer categories remained in negative territory in June, compared with a year earlier: restaurants and cafes, autos, and clothing and footwear, down 15.2%, 8.2% and 0.1%, respectively.
Starbucks Corp.
suffered a 19% drop in quarterly China sales in the second quarterthough that still compared favorably with the coffee chains 38% decline in global revenue. The companys chief executive, Kevin Johnson, said he was optimistic Starbucks would substantially recover its sales in China by the end of 2020.
McDonalds Corp.
struck a more downbeat tone on the prospects of a rebound. In China, after early signs suggesting a solid recovery, our pace of improvement has slowed, as customers remain wary of social activities, said CEO Chris Kempczinski, who predicted the subdued pattern would likely stretch into next year. McDonalds global revenues declined 24% year over year in the June quarter; it didnt break out results for China.
Yum China Holdings Inc.,
which chiefly operates KFC restaurants in the country, said revenue fell 11% in the quarter from last year and said recovery was uneven, with affluent east-coast markets bouncing back more strongly than other parts of China.
Restaurants in China are unlikely to recover their losses this year, said Ms. Wang, of the EIU. Those in commercial districts are likely to struggle as white-collar workers shift to working from home, she said.
In clothing and footwear, higher-end brands managed to fare better.
Lululemon Athletica Inc.
said its China sales grew by single-digit percentage points in April and in recent weeks had been increasing by more than 20% compared with a year earlier. CEO Calvin McDonald didnt give a quarterly figure for China, though global revenue fell 17% year over year.
Nike Inc.
also returned to growth in China in its most recent quarter, which ended May 31, as China sales rose 1% from a year earlierhelping offset a global revenue decline of 38%. The increase in China in the quarter included strong double-digit growth in May, said Matthew Friend, Nikes chief financial officer.
Under Armour Inc.
didnt break out China numbers, but it pointed to a more muted recovery. The customer is hesitant, CEO Patrik Frisk said, referring to China. Traffic levels are still not back to where they were before.
While overall auto sales in China havent fully recovered,
Tesla Inc.
was able to capitalize on demand for its locally produced Model 3 sedan. The Palo Alto, Calif.-based electric-vehicle maker more than doubled its unit sales in China in the first half of the year to 48,384 vehicles, according to data provider LMC Automotive. The companys surge in China was key to its achieving a second-quarter profit of $104 million, despite its U.S. plant being shut for a chunk of time.
Toyota Motor Corp.
said Thursday that the rebound in China had created optimism the company could deliver profit of nearly $7 billion this year, despite the pandemic. The Japanese auto makers China sales grew 23% in June from a year earlier and were down 2% for the virus-affected first half of the year.
Apple Inc.
reported 2% revenue growth in China in the most recent quarter, though unlike that of many of its fellow U.S. companies, the result compared poorly with its global performance of 11% growth in the April-to-June period.
Write to Trefor Moss at Trefor.Moss@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8