From Estee Lauder to Apple, big companies say China’s Covid restrictions are hitting business

BEIJING — Several international corporations warned in the last week the drag from China’s Covid controls will hit their entire business.

Since March, mainland China has battled an outbreak of the highly transmissible omicron variant by using swift lockdowns and travel restrictions. The same strategy had helped the country quickly return to growth in 2020 while the rest of the world struggled to contain the virus.

Now the latest lockdown in Shanghai has lasted for more than a month with only slight progress toward resuming full production, while Beijing has temporarily closed some service businesses to control a recent spike in Covid cases.

International corporations have a host of other challenges to deal with, from decades-high inflation in the U.S. and a strong dollar, to the Russia-Ukraine war. But China is an important manufacturing base, if not consumer market, that many companies have focused on for their future growth.

Here is a selection of what some of the companies have told investors about China in the last week:

Starbucks said Tuesday same-store sales in China fell by 23% in the quarter ended April 3 from the same quarter last year. That’s far worse than the 0.2% increase analysts expected, according to FactSet.

Despite nearly all its final assembly plants in Shanghai restarting production, Apple said the lockdowns would likely hit sales in the current quarter by $4 billion to $8 billion — “substantially” more than in the last quarter. The other factor is the ongoing chip shortage, management said on an April 28 earnings call.

DuPont, which sells multi-industry specialty products such as adhesives and construction materials, announced second-quarter guidance Tuesday below analysts’ expectations.

Despite a strong fiscal third quarter, makeup company Estee Lauder cut its full-year outlook due to Covid controls in China and inflation.

While analysts generally expect second-quarter profit of 29 cents a share, Yum China CFO Andy Yeung warned that “unless the COVID-19 situation improves significantly in May and June, we expect to incur an operating loss in the second quarter.”

The company operates fast food brands KFC and Pizza Hut in China, and is the majority stakeholder in a joint venture with Italian coffee company Lavazza, which has opened cafes in China in the last year.

Yum China said Tuesday that same-store sales plunged by 20% year-on-year in March, and likely maintained the same pace of decline in April. The company said it still intended to achieve its full-year target of 1,000 to 1,200 net new store openings.

For the first quarter, roughly half of MSCI China mainland stocks, excluding financials, missed first-quarter earnings expectations, with only about a quarter beating expectations, Morgan Stanley analysts said in a note Tuesday.

The quarterly results were the worst since the first quarter of 2020, the analysts said.

That’s when the pandemic initially shocked the economy and GDP contracted.

Downward earnings revisions are likely to continue for another two to four weeks, the Morgan Stanley report said, noting all of the mainland traded stocks known as A shares have all reported first-quarter results as of April 30.

Several major corporate earnings are still ahead, including Disney and Toyota Motors results due out next Wednesday local time.