Type to search

China’s Covid Curbs Brew Up Sales Trouble for Starbucks

Comparable sales in China declined 23%, reversing the rapid expansion there in recent years and overshadowing 12% growth in North America and 7% globally


A Starbucks coffee shop on a street in Shenyang in China's northeastern Liaoning province. File photo: AFP.

 

China’s tough anti-pandemic restrictions dented sales growth at Starbucks as the global coffee chain missed Wall Street targets.

Comparable sales in China declined 23%, reversing the rapid expansion there in recent years and overshadowing 12% growth in North America and 7% globally.

Given the uncertainty in China and increased investments elsewhere, the company suspended guidance for its third and fourth quarters, chief executive Howard Schultz said in a call with investors.

Shares rose 5% in extended trading following the results.

“I remain convinced Starbucks’ business in China will be eventually larger than our business in the US,” Schultz said.

He added that the company would invest an additional $200 million in fiscal 2022 to lift wages for store managers, increase training, revitalise its “Coffee Master” programme for baristas and launch an internal app to communicate directly with its 240,000 US employees.

 

Starbucks Accelerates Rollout Plans

The company will also accelerate the rollout of new ovens and espresso machines and speed up maintenance and repairs.

The new money will bring total investments in employees to $1 billion this fiscal year alone. The company previously said it is spending about $1 billion in 2021 and 2022 combined to increase salaries for both new workers and longer-term employees.

By this northern summer, average US pay will be $17 an hour, with starting wages to range from $15 to $23.

Despite strong US sales, operating margins in North America contracted to 17.1% from 19.3% in the prior year due to higher costs for labour and goods.

Total net revenue rose to $7.64 billion from $6.67 billion a year earlier, as the company opened 313 net new stores during the quarter. Analysts had expected $7.59 billion in quarterly revenue.

Net earnings rose to $674.5 million, or 58 cents per share, in the latest quarter from $659.4 million, or 56 cents per share, a year earlier. Starbucks earned 59 cents per share, in line with estimates.

 

  • Reuters, with additional editing by George Russell

 

 

READ MORE:

Starbucks Grows Delivery Services in China with Meituan Tie-up

Xi’s Starbucks letter hints Sino-US relations are perking up

China’s Disgraced Luckin Coffee Plots US Re-Listing – FT

 

Tags:

George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

logo

AF China Bond