While Starbucks has warned of price competition in China and Apple tries to drum up momentum with a new store, other U.S

March 31, 2024 | 08:34am

U.S. consumer plays in China are more than coffee and iPhones. Stocks to watch brands are seeing growth in the country

While Starbucks has warned of price competition in China and Apple tries to drum up momentum with a new store, other U.S

While Starbucks has warned of price competition in China and Apple tries to drum up momentum with a new store in Shanghai, other U.S. consumer brands are seeing growth and planning for more. Domino's Pizza's China operator DPC Dash reported Wednesday its 26th straight quarter of same-store sales growth — including the pandemic period. Last year's revenue of 3.05 billion yuan ($429.6 million) was more than triple that in 2019, while net losses narrowed to about a tenth of what they've been in prior years. "We continue to think that the company will turn net profit positive in 2025," HSBC analysts said in a note Thursday. "Growth from new markets will continue to drive the overall growth of the company," the analysts said. Chinese President Xi Jinping last week met with visiting U.S. executives as part of Beijing's bid to bolster foreign investment in China . While advanced tech is a focus of bilateral tensions, the U.S. and China have said they are looking to cooperate in areas such as climate and tourism. China's massive consumer market of hundreds of millions of households also remains attractive to many businesses. Pizza push Domino's has a roughly 14% stake in 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 by the end of the year. Papa John's , which does not break out China revenues, said it had 317 franchised locations there in 2023, up from 262 a year prior. Outside of North America, the number of Papa John's locations in China is second only to those in the U.K. The company said international revenue overall grew by 21% last year. Pizza is also taking off in smaller Chinese cities, and making the global rankings in sales. In 2023, DPC opened the first Domino's stores in 13 cities outside the better-known metropolises such as Shanghai and Beijing. Four of those new locations jumped to the top of Domino's global rankings of stores with the most sales in the first 30 days of opening, according to DPC Dash. It added that China locations have now snagged the top 19 spots for best-performing Domino's store openings. A new store in the north-central city of Xi'an came in first with sales of more than 6.3 million yuan within the first 30 days of opening, according to DPC Dash. That was followed by a new store in the central China city of Changsha, with initial sales of more than 5.2 million yuan. "We didn't actually spend a lot of marketing dollars to let people know" about the new stores, DPC Dash CEO Aileen Wang told me in an interview on Thursday. "People naturally know and they come." She characterized it as an inflection point for the company. Advertising and promotion expenses fell to 5.2% of revenue in 2023, down from 5.8% the prior year, DPC said in its 2023 results. New growth markets outside Shanghai and Beijing saw revenue double in 2023, and in the second half of the year contributed to more than half of total revenue for the first time, the company said. It noted that it hasn't begun delivery services yet for some new stores. As for whether Domino's Pizza was feeling pressure from any cautiousness among consumers, Wang pointed out the company has a starting price of 39 yuan ($5.49) per order and a 30% discount every Tuesday and Wednesday. Average sales value per order did fall by 7.1% in Shanghai and Beijing in 2023, according to DPC's latest results. "We are certainly cautious about the catering sector in FY24E," Hong Kong-based investment bank CMB International said in a note last week. "But we think DPC could still gain market share under the consumption trade down and enjoy rapid boost in growth from new markets expansion." DPC is the third largest pizza brand in China, CMBI's analyst Walter Woo said in a separate note. "DPC remains our top pick in the catering sector, thanks to its value for money position, huge room for expansion in China and esp. its consistent success in new growth markets." Woo has a buy rating on DPC Dash and a price target of 73.05 Hong Kong dollars. HSBC maintained its buy rating on DPC Dash, and trimmed their price target to 71 Hong Kong dollars ($9.07) due to lower expectations about long-term revenue growth. That price target is still more than 40% above where shares closed Thursday. Western food acceptance The Hong Kong Stock Exchange was closed for Good Friday, and doesn't reopen until Tuesday. The exchange will also be shut on Thurs., April 4, for a local Chinese holiday. The mainland exchanges are closed April 4 and 5 for the holiday. "Chinese people do eat pizza," DPC Dash CEO Wang said. "As the income level goes up, the acceptance [of] Western food is going higher." Yum China, which owns Pizza Hut in China among other brands, is set to release earnings in late April. McDonald's recently acquired a larger stake in its China operations, and in February said it plans to have 10,000 stores in China by the end of 2028. That's nearly double the company's store count of 5,903 as of the end of last year. "Certainly in China, as you've read about and seen with a number of other companies, consumer sentiment in the country is a little bit more under pressure right now, and that is leading to – in Q4 in particular we saw the environment get more promotional," CEO Christopher J. Kempczinski said on the company's latest earnings call, according to a FactSet transcript. But, he said, "we certainly think that we're going to continue to see good comp performance in that market, as consumer wealth and GDP continue to grow mid-single digits."

This story originally appeared on: CNBC - Author:Evelyn Cheng