Starbucks misses quarterly sales estimates as China weakness weighs

STARBUCKS missed Wall Street expectations for quarterly comparable sales on Thursday, as persistent weakness in the coffee chain’s China business offset strong sales in the North American market.

Shares of the Seattle, Washington-based company slid about 3 per cent to $106.34 in extended trading.

While China has largely abandoned its zero-Covid policy and began reopening in early December, customer traffic at Starbucks remained weak owing to widespread Covid-19 outbreaks in the country.

That resulted in a 29 per cent fall in China comparable sales for Starbucks in its first fiscal quarter ended Jan 1, pulling total international comparable sales down 13 per cent.

Global brands with significant exposure to China are under the microscope as investors worry about the lingering financial impact of the pandemic there.

China is Starbucks’ fastest growing market. It added a net 69 stores there over the quarter for a total of 6,090 locations.

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Wall Street analysts have said near-term trends in China are bound to be choppy. However, the lifting of restrictions could benefit Starbucks heading further into the year, boosted also by its pricier cold drinks and growing loyalty programme.

Also weighing on the company are the roughly 280 newly unionised US locations, none of which have yet reached an agreement with Starbucks on a labour contract. Cold brews and rewards

The company reported a 10 per cent jump in comparable sales in North America, as a younger and wealthier coffee-loving crowd shrugged off inflationary pressures and continued to order coffees, cold drinks and food item add-ons.

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Global comparable sales at Starbucks rose 5 per cent, compared with analysts’ average estimate of a 6.75 per cent rise, according to Refinitiv IBES data.

Starbucks reiterated its previous guidance of global comparable sales growth of 7 per cent to 9 per cent for its fiscal 2023.

It reported profit of US$0.75 per share on an adjusted basis.

Analysts on average expected profit of US$0.77.

Active membership in the recently revamped Starbucks Rewards loyalty programme grew 15 per cent in the United States over the year to 30.4 million.

Promotions and seasonal menu items like its Irish Cream Cold Brew and Peppermint Mocha drove increased US traffic on some weeks in November and December. But overall, monthly visits to Starbucks were consistently lower than last year, according to location analytics firm Placer.ai.

Starbucks reported an operating margin of 14.4 per cent for the quarter, down from 14.6 per cent a year earlier, pinched by heavy investments to modernise its stores through technology as well as elevated labour and raw material costs. REUTERS