The impact of lockdowns in China has been the major theme for retail earnings this season. That trend will likely continue over the next two weeks.
Just last week, Crocs, Under Armour and Adidas all reported headwinds to their businesses in China, largely as a result of extended lockdowns in the regions. All three companies saw their shares fall late last week after their earnings reports, amid a broader dip in U.S. markets. Shares of Under Armour were down nearly 25% on Friday after the company revealed a net loss of $60 million in the quarter, partly as a result from problems in China.
As of market close on Monday afternoon, Nike, Adidas, Skechers, and Crocs were all down at least 2.5%.
This week, Saucony and Merrell owner Wolverine Worldwide and Tapestry, which owns Coach, Kate Spade New York and Stuart Weitzman, are set to report earnings for their most recent quarter. And next week, On, Shoe Carnival, TJX Companies, Kohl’s, Foot Locker and VF. Corporation will report earnings as well.
This week, analysts and current trends suggest we can expect to see more impacts on earnings as the situation in China remains in flux.
China has employed a strict “zero-Covid” policy to combat outbreaks of COVID-19, which has led to extended strict lockdowns in various regions, most recently in Shanghai. While there is some footwear production based in Shanghai, the city for the most part is not a major center for making shoes. However, some major footwear brands, such as Columbia Sportswear Company and Nike, have headquarters there. What’s more, the normally bustling city is also an important region for retail sales from tourists and locals in brand-operated stores.
The Tapestry-owned Coach has a long history of success in the Chinese market, as a leading brand among middle-class consumers there. Tapestry CEO Joanne Crevoiserat said in a recent call with investors that the company expects to see “volatility in the near term due to the pandemic” in China, though the company expects long-term growth in the region to persist throughout the year.
Tapestry, which reports Q3 earnings on Thursday, saw sales in China grow more than 35% in Q2 above pre-pandemic levels.
“The performance of that region through the pandemic has only strengthened our conviction and the possibilities and the growth opportunities that exist in the market,” she said at the BofA Securities 2022 Consumer and Retail Technology Conference in March.
Wolverine World Wide also saw strong results in China last quarter, with revenue growth of over 60% in the region. Williams Trading analyst Sam Poser said in a May 6 note that he expects to see more improvements across Wolverine’s portfolio but is also wary of changes in China.
“The management and performance of Merrell, Saucony, Sperry, and Wolverine are improving, but visibility remains clouded due to ongoing supply chain constraints and lockdowns in China,” Poser wrote.