Starbucks reports record sales but lower profits on weak China

STARBUCKS reported record quarterly revenues on Thursday behind a strong US performance, but weak China results and increased expenses pinched profits.

Comparable sales surged at the coffee chain’s North American shops, lifted by a 10 per cent increase in average ticket size following price hikes and a slight uptick in comparable transactions.

The results are the latest from a big US consumer-oriented company to illustrate continued robust consumer demand despite inflation.

Howard Schultz, interim chief executive, attributed the strong US performance to “reinvention” investments that have included boosts to employee compensation and store revamps as the chain confronts a unionisation drive in its home market.

But the added spending on these areas – coupled with increased commodity and supply chain costs – dragged down Starbucks’ bottom line.

Profits for the quarter ending Oct 2 were US$878.3 million, down 50 per cent from the year-ago period, while revenues climbed 3.3 per cent to US$8.4 billion.

The company continued to see meager results in China amid waves of Covid-19 restrictions in the country. Comparable sales dropped 16 per cent in the period in the market.

With the coronavirus again on the rise in China, “we anticipate the current Covid-related uncertainty to continue,” Schultz told analysts on a conference call.

“While our long-term aspirations for China remain undiminished, we expect the recovery of our business in the country to be nonlinear,” Schultz said.

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Shares of Starbucks rose 2.0 per cent to US$86.35 in after-hours trading. AFP