US wages and China closures weigh on Starbucks earnings

Wage rises in the US and store closures in China weighed on Starbucks’ profit margins in the three months to July, but Howard Schultz said its quarterly performance showed signs of “early progress” in his attempt to revive the coffee chain.

Four months after Schultz returned as interim chief executive to a company struggling with inflationary pressures, shifting consumer habits and a unionisation drive in its home market, earnings for Starbucks’ fiscal third quarter fell from 97 cents per share a year earlier to 79 cents, narrowly beating the 77 cents Wall Street analysts had forecast.

The drop in pre-tax income from $1.4bn to $1.19bn came despite record quarterly revenues of $8.2bn, which were up almost 9 per cent year on year.

The period included weeks when China’s zero-Covid policies forced Starbucks to close stores or curtail services in its second-largest market, leading to a 44 per cent drop in comparable store sales in a country where it has more than 5,700 outlets.

Its comparable store sales in North America were up 9 per cent, by contrast, thanks largely to an 8 per cent increase in what the average customer spent. Operating margins fell in its largest market, from 24.3 per cent to 22 per cent, as it faced higher commodity and supply chain costs and spent more on wages and training.

“Partners” in almost 200 Starbucks stores have voted to join a union since December, putting unexpected pressure on company leaders who had considered it to be a generous employer.

“We have clear line-of-sight on what we need to do to reinvent the company, elevate our partner and customer experiences and drive accelerated, profitable growth all around the world,” Schultz said in a statement.

Starbucks gave no comment on its expectations for the rest of the year, having suspended guidance earlier in the year. The shares were up 1.5 per cent in after-hours trading.