U.S. earnings are affected once more by the slowdown in China's consumer market.

• Sales in China are declining for companies such as Apple, Starbucks, Nike, and LVMH as the economy remains weak.
• Some of the rare companies still seeing a bright spot include Tesla, as well as athleisure brands Adidas and Lululemon.

Sales of U.S. consumer brands in China have been declining for yet another quarter.

In China, tepid consumer spending and growing competition from homegrown brands have contributed to the decline in revenue for major U.S. companies operating in that market.

Sales in Greater China decreased slightly to $15.03 billion in the latest quarter, compared to $15.08 billion in the previous year. This includes sales from mainland China, Hong Kong, Macao, and Taiwan.

In an earnings call, CEO Tim Cook attributed Apple's "flat" performance to better foreign exchange and mentioned Kantar data that showed Apple had the two top-selling smartphones in urban China.

Apple's China revenue share decreased to 15.8% from 16.9% in the previous year due to a quarterly sales decline.

The Chinese smartphone market's recovery has put pressure on the sales of the iPhone maker.

Stronger competition

The local market has become increasingly competitive for Starbucks, with many Chinese and foreign brands offering coffee at significantly lower prices.

In the three months ending September 29, the U.S. coffee chain reported a 14% decline in same-store sales in China, with the average order value decreasing by 8%.

According to a FactSet transcript, CEO Brian Niccol stated on an earnings call last week that the sales were negatively affected by increased competition and a weak macroeconomic environment that reduced consumer spending.

To better comprehend the local business, he stated that he must spend more time in China.

In the most recent quarter, Starbucks' revenue from China decreased to 8.6%, compared to 9% in the previous quarter.

Low consumer confidence

The revenue for Greater China of the U.S. sportswear giant for the quarter ended August 31 decreased by 4% compared to the previous year, reaching $1.67 billion.

According to a FactSet transcript, CFO Matthew Friend informed analysts on an Oct. 1 call that Nike is not immune to the challenges facing consumers in Greater China today. He stated that retail sales did not meet the company's expectations and Nike has revised its China business forecasts for the remainder of the year.

In the quarter, Nike's revenue from China increased, accounting for 14.4% of the company's total revenue, up from 13.4% in the previous year.

The luxury giant in Europe experienced a decline in revenue from the China market, with a 16% drop in Asia revenue, ex-Japan, in the third quarter, which was significantly steeper than the 3% decline in revenue overall.

According to a Refinitiv transcript, CFO Jean-Jacques Guiony stated on Oct.16 that consumer confidence in mainland China is currently at its all-time low, which was reached during the COVID-19 pandemic.

LVMH's ex-Japan Asia sales for the first three quarters of 2023 decreased to 29% of its total revenue, compared to the 32% share reported in the same period in 2023.

Reliance on Chinese market

The China market has declined as a share of total revenue for Apple, Starbucks, and Nike when compared to 2019, the year before the pandemic.

According to Isaac Stone Fish, founder and CEO of Strategy Risks, what sets China apart is its partnerships and politics, and the significance of a company's ties to China.

In late September, the firm released an analysis of U.S. companies with the highest level of China exposure, including Ford, Carrier, Apple, Tesla, Coca Cola, Cummins, RTX Corporation, Honeywell, Walt Disney, and Caterpillar.

"The possibility of increased tensions between the U.S. and China and a potential Chinese invasion of Taiwan or a blockade that would upend global supply chains and distort the market as it is today depends on how risk-averse investors are, according to Fish."

Bucking the slowdown

Despite its efforts to diversify its revenue streams, Elon Musk's company still heavily relies on China for more than one-fifth of its revenue. In the quarter ended Sept. 30, this share grew to 22.5% as the electric car company's sales in China climbed by nearly 13% year-on-year to $5.67 billion.

Despite growing competition from local automakers, Tesla's Model Y remained China's best-selling electric vehicle in September.

Adidas' total revenue for the quarter was 6.44 billion euros, with Greater China sales accounting for 14.7% and totaling 946 million euros ($1.03 billion).

According to a Refinitiv transcript, during an Oct. 29 earnings call, CEO Bjørn Gulden attributed the stronger-than-expected growth in the third quarter to "strong underlying growth in Greater China" and stated that Adidas is developing and sourcing products locally in China to compete.

The company that is set to report earnings on Dec. 5 has defied the trend by reporting a 34% increase in mainland China revenue for the quarter ended July 28. CFO Meghan Frank stated in August that the company plans to open most of its new stores in mainland China this year.