Wall Street falls as growth stocks, glum China data weigh. European Stock markets struggle as fears over economy grow. Chinese economy takes a hit as Beijing, Shanghai reel under lockdown. Industrial production and retail sales are in sharp decline: Q1 sales of Yue Yuen - largest branded athletic and casual footwear OEM manufacturer in the world - hurt by declines at Pou Sheng retail division. Crocs, Under Armour and Adidas all reported headwinds to their businesses in China.
Wall Street's main indexes fell on Monday as downbeat data out of China added to worries about a global economic slowdown against the backdrop of aggressive policy tightening by the U.S. Federal Reserve.
Chinese and European stock markets fell, while oil slid as data showed China's economic activity cooled sharply in April as COVID-19 lockdowns took a heavy toll on consumption, industrial production and employment.
China, which prides itself on stamping out COVID-19 after it broke out at Wuhan in December 2019 before it became a pandemic causing havoc around the world with millions of deaths, struggled to deal with the Omicron Tsunami in the last few months resulting in lockdowns of several cities including its business hub Shanghai besides capital Beijing, which is currently under semi-lockdown.
The overnight data dump out of the world’s second-largest economy delivered a whole lot of disappointment, and isn’t helping market sentiment. Industrial production, fixed-asset investment, and retail sales in China all slowed (or shrank) even more than economists anticipated last month. The impact of the country’s attempt to contain COVID was most evident in consumer spending, as retail sales collapsed 11.1 per cent year-over-year in April — almost double the median estimate. The magnitude of the downturn will inevitably lead to questions about policymakers’ response to bolster the economy.
In the first three months of 2022, the revenue attributable to Pou Sheng, Yue Yuen Group’s retail subsidiary, declined by 23.5 percent to US$862.5 million, compared to US$1,127.7 million in the same period of last year. In RMB terms, Pou Sheng’s reporting currency, revenue during the first three months of 2022 declined by 25.0 percent to RMB5,480.6 million, compared to RMB7,306.8 million in the corresponding period of last year, which was mainly attributed to weak foot traffic in the shopping venues and cities where Pou Sheng operates following COVID-19 lockdowns and local government’s closed-loop management across mainland China.
Headwinds in China have been the common theme throughout retail earnings reports this season.
Over the last few weeks, Crocs, Under Armour and Adidas all reported headwinds to their businesses in China, largely as a result of extended lockdowns in the regions. China’s strict “zero-Covid” policy to combat outbreaks of COVID-19 has led to extended strict lockdowns in various regions, most recently in Shanghai, a city home to distribution centers and multiple retail store locations. More recently, Allbirds, Wolverine Worldwide and Tapestry also reported similar hits to their China businesses and global supply chain.
Despite the headwinds abroad, some executives remained confident in the potential for recovery in the back half of 2022. At the same time, others are predicting longer-term impacts to their business that could last through 2023.
Wolverine, which owns the Saucony, Merrell, Sperry and Sweaty Betty brands, among others, noted that it was dealing with longer lead times for freight, partly impacted by lockdowns in China. However, the company still reaffirmed its fiscal 2022 guidance for revenue and EPS, and said it expects revenues to be in the range of $2.78 billion to $2.85 billion, with a growth rate of 15% to 18%.
“We expect supply chain to be a lessening, but still meaningful headwinds throughout the year, with evolving COVID issues in China presenting a new potential challenge,” said Wolverine CEO Brendan Hoffman.
Tapestry, which owns Kate Spade, Coach and Stuart Weitzman, also posted an optimistic business outlook for the fiscal year, despite pressures in China. The company anticipates gradual improvements in China, starting with the expected reopening of its regional distribution center in mid-May and the easing of Shanghai lockdowns in the beginning of June.
On the other hand, Adidas, Under Armour and Allbirds all offered weak guidance for the fiscal year, partly due to impacts in their China businesses.
Allbirds co-founder and co-CEO Joseph Zwillinger said that COVID restrictions have slowed sales in stores and slowed overall demand in the region, which the company believes could remain through 2022.
Under Armour, which reported a net loss of $60 million in the quarter, said it expects COVID-19 impacts in China to lessen through fiscal year 2023. Adidas last week said it expects revenues in Greater China to decline “significantly” in 2022. Currently, 25% of Adidas’ stores and 15% of its partner stores are closed in China.
“Given the severity of the situation, a sudden rebound seems unlikely as drastic countermeasures, such as strict lockdowns and containment measures, are leading to a significant drop in consumer spending,” said Adidas CEO Kasper Rorsted.
Next week, when On, Foot Locker and VF Corp. report earnings, some of them will likely highlight similar headwinds regarding the ongoing situation in China.
