(Bloomberg) -- Starbucks Corp. shares rose in late trading as a strong US performance and higher prices helped to offset lower traffic and sluggishness in China amid anti-Covid measures that have suppressed demand there.
- Sales of $8.15 billion came in slightly above expectations in the fiscal third quarter ended July 3, Starbucks said Tuesday. However, the key measure of same-store sales rose 3% -- below analysts’ projected 4.3% gain, according to data compiled by Bloomberg.
- The average ticket -- or cost per order -- rose 6%, but comparable transactions fell 3%. This shows that higher prices are making up for a lower volume of sales.
- The company said its financial guidance remains suspended “for the balance of this fiscal year.”
- See statement here
Key Insights
- The results back up recent earnings reports from McDonald’s Corp. and Chipotle Mexican Grill Inc. that show how Americans are still spending money on dining out, even if inflation is starting to erode some consumers’ purchasing power.
- Founder and interim Chief Executive Officer Howard Schultz said the results “demonstrate the early progress we have made in just four short months.” Since taking over in April, Schultz has moved to shake up management and blunt a growing US union drive in the US.
- Inflation remains a concern. Operating margin in the quarter was 15.9% in the quarter, above analysts’ projection but still a 400 basis-point decline from a year earlier. The company said the drop was due to inflation, higher wages for workers and anti-Covid measures in China. Higher prices in North America and sales in Europe helped to offset the pressure.
- Uncertainty surrounding China, which is a key market for Starbucks along with the US, has grown amid on-and-off pandemic restrictions that have restricted mobility in major cities and curbed demand. Comparable sales in the country fell 44% during the quarter, while analysts estimated a 39% drop. The chain recently began reopening dining rooms across Shanghai.
- A spokesperson said the company has also seen a recent reduction in employee turnover. In April, Schultz told employees that 80% of baristas had been with the company less than a year, a figure he called “shocking.” The company is trying to convince its workers that they will be better off if they don’t unionize.
Market Reaction
- The shares rose 1.5% at 4:39 p.m. in late trading in New York. The stock has dropped 28% so far this year through Thursday’s close -- double the decline of the S&P 500 Index over the same period.
(Updates share price and adds bullet on employee turnover.)
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Author: Leslie Patton