As previously documented on BRIIDGE, the impact of significant fiscal and monetary policies—followed by a tightening cycle—has highlighted the cyclicality of companies dependent on consumer disposable income.

This shift has rapidly led many investment themes and industries to transition from historic highs to notably depressed valuations, primarily driven by expectations of margin contractions, valuation resets, and investors’ preference for safer, fixed-income alternatives over long-duration investments.

In response, industries’ abilities to align with market movements have largely depended on their time-to-ROI.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Notably, the tobacco industry has mirrored broader market trends, demonstrating performance over a three-year horizon that aligns with the general market on an equal-weight basis, and even outpacing both the consumer defensive and consumer cyclical sectors during this period.

Unlike other industries grappling with macroeconomic headwinds that have dampened sales, the tobacco industry has benefited from region-specific growth factors in North America.

Key drivers include the rising demand for reduced-risk and smoke-free products, such as Philip Morris International’s IQOS and ZYN nicotine pouches, as well as British American Tobacco’s heated tobacco products.

This shift aligns with the industry's strategic pivot from traditional cigarettes to reduced-risk offerings, appealing to an increasingly health-conscious consumer base.

Despite regulatory challenges, litigation costs tied to advertising restrictions, and moderate sales figures compared to the reference sector, the industry’s strong and stable margins have contributed to a performance in line with the benchmark.

While North American performance has been resilient, offering a short-duration hedge against inflation in a volatile inflationary environment, regulatory constraints in China have posed significant challenges.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

These include stringent measures such as restricting the sale of tobacco-flavored e-vapor products to licensed stores, which have adversely impacted sales for companies like RLX Technology.

With a negative performance spread exceeding 100% over a three-year period, RLX Technology has shifted its focus to cost-cutting initiatives and enhancing supply chain efficiency to mitigate these regulatory impacts.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA