American consumers do more than just coffee and iPhones in China.Stocks to Watch | Private Equity Weekly
While Starbucks warns of price competition in China and Apple attempts to build momentum by opening new stores in Shanghai, other U.S. consumer brands are seeing growth and planning further expansion. DPC Dash, the Chinese operator of Domino’s Pizza, reported on Wednesday that its same-store sales have increased for 26 consecutive quarters – including during the epidemic. Revenue last year was 3.05 billion yuan ($429.6 million), more than triple that in 2019, while net losses narrowed to about one-tenth of previous years. “We still believe the company will achieve positive net profits in 2025,” analysts at HSBC said in a report on Thursday. “Growth in new markets will continue to drive the company’s overall growth,” analysts said. China National President Xi Jinping met with visiting U.S. executives last week as part of Beijing’s drive to boost foreign investment in China. While advanced technology is at the center of bilateral tensions, both the United States and China say they are seeking to cooperate in areas such as climate and tourism. China’s huge consumer market with hundreds of millions of households remains attractive to many companies. Boosting pizza business Domino’s owns about 14% of DPC Dash, which listed in Hong Kong about a year ago. The pizza brand opened its 800th store in China in January and plans to open 200 more stores by the end of the year. Papa John’s, which does not break out revenue in China, said it will have 317 franchise stores in China by 2023, up from 262 a year ago. Outside of North America, Papa John’s has the largest number of stores in China after the United Kingdom. The company said overall international revenue grew 21% last year. Pizza is also booming in China’s smaller cities and climbing into global sales rankings. In 2023, DPC opened its first Domino’s stores in 13 cities outside well-known metropolitan areas such as Shanghai and Beijing. According to data from DPC Dash, sales of four of the new stores jumped to the top of Domino’s global store rankings within 30 days of opening. The Chinese store now ranks among the top 19 Domino’s best-performing store openings, the company added. According to data from DPC Dash, a new store in the north-central city of Xi’an ranked first, with sales exceeding 6.3 million yuan within 30 days of opening. A new store was subsequently opened in the central Chinese city of Changsha, with initial sales exceeding 5.2 million yuan. “We’re not actually spending a lot of marketing dollars to make people aware” of the new store, DPC Dash CEO Aileen Wang told me in an interview Thursday. “People knew about it and they came.” She described it as a turning point for the company. DPC said in its 2023 results that advertising and promotion expenses fell to 5.2% of revenue in 2023 from 5.8% the previous year. The company said revenue from new growth markets outside Shanghai and Beijing will double in 2023, with the second half contributing more than half of total revenue for the first time. It noted that delivery services have not yet started for some new stores. As for whether Domino’s Pizza is feeling pressure from consumers’ cautious attitudes, Wang noted that the company’s prices start at 39 yuan ($5.49) per order, with a 30% discount every Tuesday and Wednesday. According to DPC’s latest results, average sales per order in Shanghai and Beijing did drop by 7.1% in 2023. “We are definitely cautious about the catering industry in fiscal 2024,” Hong Kong investment bank CMB International said in a report last week. “But we believe DPC can still gain market share amid the decline in consumer trade, And gain rapid growth from new market expansion.” CMBI analyst Walter Woo said in a separate report that DPC is the third largest pizza brand in China. “DPC remains our top pick in the restaurant industry, thanks to its value-for-money position, significant room for expansion in China, and especially its continued success in new growth markets.” Woo rates DPC Dash a Buy , with a target price of HK$73.05. HSBC maintained a buy rating on DPC Dash and lowered its target price to HK$71 ($9.07), citing lower expectations for long-term revenue growth. The target price is still more than 40% higher than Thursday’s closing price. Western Acceptance Hong Kong’s stock exchange was closed for Good Friday and did not reopen until Tuesday. The exchange will also be closed on Thursday, April 4, for a local holiday in China. Mainland exchanges will be closed during the holiday period from April 4th to 5th. “Chinese people do eat pizza,” said DPC Dash CEO Wang. “As income levels increase, people are becoming more and more receptive to Western food.” Yum China, which owns Pizza Hut and other brands in China, is scheduled to release its financial report at the end of April. McDonald’s recently acquired a larger stake in its China operations and said in February that it planned to have 10,000 stores in China by the end of 2028. That’s nearly double the number of stores the company had at the end of last year (5,903). “Certainly in China, as you’ve read in many other companies, consumer confidence in the country is under greater pressure right now, which has led to — particularly in the fourth quarter, we’ve seen the environment get better. Chief Executive Christopher J. Kempczinski said on the company’s latest earnings call, according to a FactSet transcript. But, he said, “We certainly think that as consumer wealth and gross domestic product continue to grow in the mid-single digits, we We will continue to see good performance in this market. “
