Tapestry Inc and Estée Lauder Cos Inc recently announced their full-year earnings, which were lower than expected. The results shed light on the impact of China’s Covid-19 lockdowns on the luxury goods industry in the US. Several major Chinese cities have implemented multiple rounds of restrictions as part of Beijing’s “dynamic zero-Covid” policy, resulting in a decline in consumer visits to crowded shopping districts. This situation has affected luxury fashion companies with a presence in China, including Tapestry, Estée Lauder, Kering (owner of Gucci), EssilorLuxottica, and Ralph Lauren Corp, all of which have experienced a decrease in sales in this important growth market.
Estée Lauder relies heavily on China, generating over a third of its revenue from the country. Tapestry, known for its Coach handbags, derives about 20% of its sales from the region. However, Tapestry has observed some signs of recovery in Chinese demand, with sales expected to decrease by 15% in the first quarter compared to a 32% drop in the previous quarter. Analysts believe that the decline in China is primarily due to the lockdown measures and anticipate a rebound in consumer activity once the lockdowns are lifted.
Looking ahead to fiscal year 2023, Tapestry has forecasted earnings per share between $3.80 and $3.90, slightly lower than analysts’ estimates of $3.91. Similarly, Estée Lauder expects adjusted profit per share to increase between 5% and 7%, falling below the Wall Street projection of a 10.5% gain. Moreover, the companies’ sales growth forecasts for 2023, ranging from 3% to 5%, also fell short of estimates of a 7.6% rise.
Despite these challenges, both Tapestry and Estée Lauder have exceeded fourth-quarter profit expectations. Affluent American consumers, who have been largely unaffected by inflation, have continued to indulge in high fashion as they resume social activities. This trend has helped offset some of the losses incurred from the China lockdowns.
The luxury goods industry worldwide has been significantly disrupted by the Covid-19 pandemic, and China’s strict measures to contain the virus have had a profound impact on companies heavily reliant on this market. As the global recovery continues, luxury brands are closely monitoring the situation in China, hopeful for a speedy revival of consumer confidence and spending.
Useful links:
Forbes: Why US Luxury Brands Continue To Underperform In China
Al Jazeera: China’s ‘zero-Covid’ policy slams luxury goods market growth prospects
