Starbucks to hike prices to offset inflation; lowers profit guidance

STARBUCKS Corp will raise menu prices in 2022 and reduce some spending to offset soaring costs for labour and goods, as rising Covid-19 cases prompted the coffee chain on Tuesday (Feb 1) to lower estimates for profits this year.

The company missed estimates for quarterly profits and comparable sales as the fast-spreading Omicron variant also led to delayed office reopenings and new restrictions in China, the company's fastest growing market.

Restaurants are paying more for everything from chicken and cooking oil to packaging and transportation services amid record inflation and Covid-19 disruptions, and many, including Starbucks have raised wages amid the labor shortage.

The extra costs have eaten into margins. Starbucks reported profits of 72 cents per share, missing Wall Street estimates of 80 cents. The company revised its expected adjusted earnings per share growth forecast for 2022 to 8-10 per cent, from at least 10 per cent previously.

The Seattle-based chain - whose workers in more than 50 of its US stores are seeking to unionise - has also paid more to train new employees and for them to isolate after exposure to Covid-19.

"When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations," chief executive officer Kevin Johnson said during a call with investors.

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After hiking menu prices in October and January, the chain plans to raise them again in 2022 and will cut spending on marketing and promotions, Johnson said.

Starbucks did not specify the products for which it would raise prices. A venti cappuccino is now US$5.25.

Global comparable sales rose 13 per cent in the first quarter ended Jan 2, Starbucks said, while analysts polled by Refinitiv IBES had expected growth of 13.2 per cent.

Same-store sales in the international division declined 3 per cent, reflecting a 14 per cent drop in China. Analysts had expected a 0.5 per cent increase in the international segment.

Several Chinese cities have closed seating areas and restricted movement to curb Covid-19 ahead of the Winter Olympics, knocking the coffee chain's revenue. The brand also came under fire in the country after a report said 2 of its stores used expired ingredients.

Comparable sales in the United States jumped 18 per cent, benefiting from new cold beverages, higher prices and an increase in rewards members.

Total net revenue rose 19 per cent to US$8.1 billion, while analysts had expected US$7.95 billion. REUTERS