A slew of earnings this week will help answer pressing questions about a number of companies and sectors. Is the Vans rebound for real? (Owner VF Corp. reports on Oct. 28.) What’s next for Next? (Find out the next day.)
An emerging earnings season narrative from the mostly luxury brands that have reported so far is that we’re perhaps, maybe, just possibly seeing the start of a rebound in China. To recap: a strict and protracted Covid lockdown, the burst property bubble and ensuing stock market wipeout put a damper on consumer spending, particularly for flashy, high-end goods. Last week, L’Oréal, LVMH and Hermès were among the companies reporting improvements in how their brands are faring in China, though Hermès was quick to caution that the turnaround is “very slight.”
Who’s reporting this week: Luxury outerwear purveyor Moncler reports along with VF on Oct. 28. Adidas and Next follow on the 29th, with Puma, The Estée Lauder Cos., Crocs and Amazon on Oct. 30.
What they said last time: This week’s earnings are heavy on brands that have managed to avoid the worst of the slowdown.
Moncler and Crocs have routinely touted their success in China in the media and to investors, even as many of their rivals have struggled. In July, Moncler credited “resilience” in China for countering sluggish sales in Europe and Japan. Crocs’ sales in China zoomed up 30 percent in the second quarter; the company attributes its partnerships with Chinese celebrities and cleaned up retail distribution for countering weak consumer confidence (for more on the footwear brand’s China strategy, check out our case study “The Playbook for Succeeding in China’s New Reality”).
For Estée Lauder, China is a particular sore spot, as business there was tied up in travel retail, which was devastated by the pandemic and has continued to suffer as Chinese consumers increasingly prefer premium domestic brands that compete directly with Estèe Lauder’s biggest lines. Last quarter, the company said it saw “early signs of stabilisation” in China, and expected mid-single-digit percentage growth going forward.
Adidas has shifted its considerable production in the country to serve the local market. This has helped the company boost sales by allowing it to more nimbly cater to local trends, and to avoid the worst of US tariffs (more on that in a bit).
Out of their hands: As Hermès finance chief Eric de Halgouet noted in the company’s earnings call last week, Chinese luxury consumption depends on the property market stabilising (if not recovering) and this year’s stock market rally continuing.
Macroeconomics aren’t the only X factor for the brands reporting next week. Their earnings calls will be happening as President Donald Trump embarks on a trip to Asia, where he is expected to meet China’s leader, Xi Jinping, to negotiate an end to a standoff that has seen China restrict exports of rare earth metals and the Trump administration threaten a 100 percent tariff on Chinese goods, set to go into effect on Nov. 1. Both sides have made these threats before only to back down or delay implementation. But as any Swiss watchmaker will tell you, that doesn’t mean worst case tariff scenario won’t happen.
Further out, China’s Singles Day holiday on Nov. 11 will provide the best reading yet on the mindset of Chinese consumers. The fashion industry’s expectations are low. Don’t take my word for it, though. Here’s Prada chief executive Andrea Guerra last week, right after declaring the worst was over in China:
“I don’t think that we will ever see again, in the near future, what we have seen in the last decade,” he told analysts.
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