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Starbucks reports record revenue on frothy US demand

AP – Starbucks on Tuesday reported record revenue in the April-June period, as strong United States (US) demand made up for COVID shutdowns in China.

The Seattle-based coffee giant exceeded sales expectations despite continuing store closures and reduced hours in China due to coronavirus measures. Starbucks said its same-store sales in China – its second-largest market after the US – were down 44 per cent in its fiscal third quarter. Starbucks said it ended the quarter with roughly 2,000 stores in 50 cities operating with COVID restrictions.

But strong US demand made up for that. Same-store sales, or sales at stores open at least a year, rose nine per cent in the US, where customers are spending more on customisable cold beverages and food, like lime-frosted coconut bars. Morning traffic was also picking up as more people returned to offices.

Interim Starbucks CEO Howard Schultz said the company is not yet seeing any impact from inflation, despite increasing prices about five per cent over the same period last year.

“While we are sensitive to the impact inflation and economic uncertainty are having on consumers, it’s critically important that you all understand we are not currently seeing any measurable reduction in customer spending or any evidence of customer’s trading down,” Schultz said on Tuesday on a conference call with investors.

Schultz added that cold drinks, which now make up 74 per cent of US beverage sales, have become a huge competitive advantage for Starbucks and are bringing in younger customers.

“The premium, customised cold coffee opportunity is simply enormous,” Schultz said.

Starbucks Coffee shop sign in Harvard Square in Cambridge. PHOTO: AP

Starbucks’ revenue rose nine per cent to USD8.2 billion, a quarterly record. That surpassed Wall Street’s forecast of USD8.1 billion, according to analysts polled by FactSet.

New stores, including many that are more focussed on drive-thru and curbside service, are helping sales. The company said it has opened 298 net new stores in its North America region since June 2021 and 1,355 new stores in international markets.

Starbucks said its net income fell 21 per cent to USD912.9 million as it spent more on labour, worker training and supply chain costs. Last fall, the company announced a USD1 billion investment in employee wages and benefits in an effort to lift US workers’ pay. US workers currently make an average of USD17 per hour, Starbucks North America chief John Culver said. Training hours have also increased.

Schultz said Starbucks is in the midst of a modernisation plan that he hopes will help it retain employees and better keep up with customer demand. The plan – which will be fleshed out in more detail at the company’s investor day in September – comes amid growing employee dissatisfaction at some US stores.

Over 200 of Starbucks’ 9,000 company-owned US stores have voted to unionise since last December, a move the company opposes. Schultz did not mention the union campaign on Tuesday.

Schultz, a longtime CEO of Starbucks who rejoined the company in April, reiterated his plan to remain through the first few months of 2023 even after a new CEO is named.

Schultz said the company has narrowed down its list of potential CEOs who are “excited and positive and in agreement” about the modernisation plan.

“I have committed myself to stay as long as necessary to ensure that the new CEO has a soft landing and then I transition to the board,” he said. Adjusted for one-time items, Starbucks earned USD0.84 per share. That was higher than the USD0.77 profit Wall Street forecast.

Starbucks shares rose nearly two per cent in after-hours trading.

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