Wall Street is concerned about China’s draconian Covid-19 restrictions — which have weighed heavily on the world’s second-largest economy for nearly three years — could weigh on Estee Lauder (EL) and Starbucks (SBUX) profits when the two US companies report this week. At the Club, we have also tempered expectations given the high exposure of both holdings to China, but we believe the headwinds are temporary and the Chinese economy will gradually reopen in the coming quarters. Estee Lauder will report its fiscal first quarter and full-year 2023 results before the opening bell on Wednesday. Analysts expect annualized earnings per share to fall 30% to $1.31 per share, while total revenue should fall by 10.5 % to $3.93 billion, according to estimates prepared by Refinitiv. Starbucks will release its fourth-quarter and full-year fiscal results after the closing bell on Thursday. Analysts expect earnings per share to fall 28% year-over-year to 72 cents per share, Refinitiv said. Total revenue is expected to increase 2.5% year-over-year to $8.31 billion. The acquisition of Wall Street multinationals operating in China have seen sales come under pressure largely due to ongoing Covid lockdowns, part of Beijing’s so-called zero-Covid policy. Cosmetics giant Estee Lauder, which relies on China for about 36% of its revenue, should see weakness in the region in its fiscal prime before eventually posting positive growth in 2023, according to analysts at the Telsey Advisory Group. “While the extent of underperformance varies, overall, China remains the weakest region of companies reporting results for the quarter ended September, given lockdowns, supply chain disruptions and declining retail traffic,” the analysts wrote in a recent report. research report. . At the same time, Credit Suisse analysts wrote in a note: “While we still think EL has the clearest earnings growth story in China in our coverage over the next decade… [government] comments suggest that the Covid zero policy is likely to remain an overhang for consumer brands in the near term. Analysts at the bank wrote in a recent note that they expected economic restrictions in China to dampen Starbucks’ outlook when it reports this week. [comparables] and confidence in the recovery scenario that appears necessary for SBUX to meet its three-year growth targets,” the analysts wrote in a recent note. Still, Credit Suisse analysts argued that China “should turn into a tailwind over time” for Starbucks , citing the market as one of the “most meaningful drivers of the number-growth” continues to show that Starbucks has tremendous growth potential in international markets, particularly China, where the coffee retailer plans to open thousands of new stores. The short-term setback of the Chinese government’s strict Covid policies should be seen as a buying opportunity.The same goes for Estee Lauder, we are confident that once the Covid restrictions are lifted, China’s demand for beauty products will improve t Estee Lauder is an industry leader that can withstand short-term pressure.The Club bought 40 new ones last week shares of EL. Overall, these two club names show that investors may have concerns in the short term based on macroeconomic pressures, while still being optimistic in the long term. (Jim Cramer’s Charitable Trust is long SBUX, EL. See here for a full listing of the stock.) As a TBEN Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charity’s portfolio. If Jim has talked about a stock on TBEN TV, he will wait 72 hours after issuing the trade warning before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO CONFIDENTIAL OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO PARTICULAR OUTCOME OR PROFIT IS GUARANTEED.
A girl drinks iced coffee at a Starbucks coffee shop in Tianjin, China.
Zhang Peng | Light Rocket | Getty Images
Wall Street is concerned that China’s draconian Covid-19 restrictions — which have weighed heavily on the world’s second-largest economy for nearly three years — could weigh on profits Estee Lauder (EL) and Starbucks (SBUX) when the two US companies report this week.
