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Starbucks beats profit estimates despite hit to China business

Randy Mancini 3 Aug 2

By Deborah Mary Sophia and Hilary Russ

(Reuters) -Starbucks Corp beat Wall Street estimates for quarterly profit on Tuesday as higher prices and strong demand for its coffees in the United States helped offset a hit to business in China from renewed COVID-19 lockdowns.

The Seattle-based chain earned 84 cents per share on an adjusted basis, beating estimates of 75 cents. Shares of the company rose more than 1% in extended trading.

However, global comparable sales rose 3% in the fiscal third quarter ended July 3, compared with analysts’ average estimate for a 3.76% rise, according to Refinitiv IBES.

A fresh round of lockdowns in Shanghai and a resurgence of COVID-19 in Beijing and other Chinese cities had forced Starbucks stores to shut seating areas, allowing the company to offer only deliveries or mobile orders for most of the quarter.

Comparable sales in China, Starbucks’ fastest-growing market, slumped 44% in the third quarter, bruising its international business.

Higher costs for ingredients and enhanced benefits for some U.S. employees ate in to operating margins, which fell by 400 basis points to 15.9%. Same-store sales grew 9% in North America.

As it fends off an organizing drive that has prompted workers at 200 stores to vote to unionize since last year, interim Chief Executive Officer Howard Schultz said in April that the company would boost benefits and wages – but only for workers in non-unionized stores – starting this week.

“We have clear line of sight on what we need to do to reinvent the company,” Schultz said in an earnings release. “The Q3 results we announced today demonstrate the early progress we have made in just four short months.”

Total net revenue rose to $8.15 billion from $7.5 billion a year earlier, edging past analysts’ average estimate of $8.11 billion.

(Reporting by Deborah Sophia in Bengaluru and Hilary Russ in New YorkEditing by Maju Samuel and Matthew Lewis)