Starbucks reports record revenue on frothy US demand

By DEE-ANN DURBIN
AP Business Writer

Starbucks on Tuesday reported record revenue in the April-June period, as strong U.S. 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 U.S. __ were down 44% 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 U.S. demand made up for that. Same-store sales, or sales at stores open at least a year, rose 9% in the U.S., where customers are spending more on customizable 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 isn’t yet seeing any impact from inflation, despite increasing prices about 5% 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 Tuesday on a conference call with investors.

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

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

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

New stores, including many that are more focused 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% 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 lift U.S. workers’ pay. U.S. workers currently make an average of $17 per hour, Starbucks North America chief 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 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 U.S. 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 didn’t mention the union campaign 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 modernization 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 84 cents per share. That was higher than the 77-cent profit Wall Street forecast.

Starbucks shares rose nearly 2% in after-hours trading.