Starbucks sales in China fell.
David Paul Morris/Bloomberg
Starbucks
stock fell in after-hours trading as its quarterly results came in worse than expected, partly because of a poor performance in China.
For its fiscal first quarter, the three months through Jan. 1,
Starbucks
(ticker:
SBUX
) posted adjusted earnings of 75 cents a share, missing estimates for 77 cents a share. Problems in China contributed to a 6-cent decline in earnings per share, the company said.
Sales clocked in at $8.7 billion, a hair below estimates for $8.79 billion. Meanwhile, same-store sales were up 5% globally, under estimates for 6.7%. Same-store sales in China fell 29% compared with the same quarter last year, the company said. Widespread lockdowns, part of the country’s former zero-Covid policy, kept people at home for extended periods toward the end of the first quarter, the company said.
“In early December, zero-Covid was lifted, and covid infections spiked across China resulting in a dramatic decline in consumer activity across the country and causing the most severe Covid disruptions any retailer had encountered,” said interim CEO Howard Schultz in a call with investors.
At its peak, nearly 1,800 stores were closed in December alone, resulting in weak same-store sales, Schultz added.
Starbucks stock fell 2% to $107 in after-hours trading.
Starbucks predicts the second half of fiscal 2023 will be stronger in China than the first half, as Chinese consumers recover from Covid infections and venture back out to retail activities. Still, uncertainties remain, Schultz said, and operating challenges in China will continue to take a bite out of profit in the second quarter. The company is forecasting China to produce negative comparable sales in the second quarter before improving in the second half of the year.
“We expect the market to see meaningful sales rebound once recovery is in full swing,” said Rachel Ruggeri, chief financial officer. “Until then we continue to stay focused on the long-term growth opportunities that China will deliver.”
Despite the continuing hurdles in China, Starbucks reiterated its financial forecasts for fiscal 2023. The outlook called for comparable-store sales to grow between 7% and 9%. Consolidated revenue growth is expected to be between 10% and 12%. Operating margin is expected to decline sequentially in the second quarter, but expand in the second half of the year.
Part of the reason that the company remains optimistic about its outlook is that it continues to see strength in other markets, including North America, Latin America, and other countries in Asia. North America alone saw same-store sales jump by 10% this quarter, and net revenue increase by 14%. In the U.S., Starbucks’ rewards program saw active members increase by 15% year-over-year to 30.4 million.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
Credit: marketwatch.com