Starbucks reports record revenue from sparkling demand in the US

Starbucks on Tuesday reported record revenue in the April-June period as strong US demand offset COVID shutdowns in China.

The Seattle-based coffee giant beat sales expectations despite continued 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% in its fiscal third quarter. Starbucks said it ended the quarter with about 2,000 stores in 50 cities operating with COVID restrictions.

But strong US demand offset that. Same-store sales, or sales in stores open at least a year, are up 9% in the US, where customers are spending more on customizable cold drinks and foods, such as frozen coconut lime bars. Morning traffic was also picking up as more people headed back to offices.

Starbucks interim CEO Howard Schultz said the company doesn’t yet see any impact from inflation, even though prices rose about 5% over the same period last year.

“While we are sensitive to the impact that inflation and economic uncertainty have on consumers, it is critically important that everyone understands that we are currently not seeing any measurable reduction in customer spending or any evidence that customers are trading down,” Schultz said Tuesday at a conference. he call with investors.

Schultz added that cold drinks, which now account for 74% of US beverage sales, have become a huge competitive advantage for Starbucks and are attracting younger customers.

“The premium and personalized cold brew opportunity is just huge,” said Schultz.

Starbucks revenue rose 9% to $8.2 billion, a quarterly record. That beat Wall Street’s forecast of $8.1 billion, according to analysts surveyed by FactSet.

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

Starbucks said its net income fell 21% to $912.9 million as it spent more on labor, worker training and supply chain costs. Last fall, the company announced a $1 billion investment in employee wages and benefits in an effort to raise wages for American workers. American workers currently earn an average of $17 an hour, Starbucks North America boss John Culver said. Training hours have also increased.

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

More than 200 of Starbucks’ 9,000 company-owned U.S. stores have voted to unionize since last December, a move the company opposes. Schultz did not mention the union drive on Tuesday.

Schultz, a former Starbucks CEO who rejoined the company in April, reiterated his plan to stay on 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, positive and on board” with the modernization plan.

“I have committed to sticking around as long as it takes to ensure the new CEO has a smooth landing and then transitions to the board,” he said.

Adjusted for one-time items, Starbucks earned 84 cents per share. That was higher than Wall Street’s 77-cent earnings forecast.

Shares of Starbucks were up nearly 2% in after-hours trading.