Starbucks revenue falls short as Covid hurts China sales, coffee chain offers mixed fiscal 2022 outlook
- Starbucks topped analysts' estimates for its fiscal fourth-quarter earnings, but the coffee chain fell short on revenue.
- China saw same-store sales shrink by 7% in the quarter, missing Starbucks' prior forecast of flat same-store sales growth.
- U.S. same-store sales increased by 22% in the quarter, rising by 11% on a two-year basis.
Starbucks shares tumbled nearly 6% in premarket trading on Friday after the coffee chain reported disappointing sales growth in China in its fiscal fourth quarter and shared a mixed outlook for the coming fiscal year.
After the market closed Thursday, Starbucks said a resurgence of Covid-19 in China weakened sales in the key market.
As the global coffee chain battles rising costs and the continued impact of the pandemic, it shared its forecast for fiscal 2022. Its outlook for earnings per share fell short of Wall Street's estimates, but its revenue prediction topped expectations.
Here's what the company reported for the quarter ended Oct. 3 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1 adjusted vs. 99 cents expected
- Revenue: $8.1 billion vs. $8.21 billion expected
Starbucks reported fiscal fourth-quarter net income of $1.76 billion, or $1.49 per share, up from $392.6 million, or 33 cents per share, a year earlier.
Excluding the gains from the sale of its South Korean joint venture and an extra week in the reporting period, the coffee giant earned $1 per share, topping the 99 cents per share expected by analysts surveyed by Refinitiv.
Net sales rose 31% to $8.1 billion, falling short of expectations of $8.21 billion. Global same-store sales climbed 17%, missing StreetAccount estimates of 18.3%.
U.S. same-store sales increased by 22% in the quarter, and rose 11% on a two-year basis. Customers spent 3% more on transactions on average. The company's loyalty program reported 24.8 million active members, up 28% from a year earlier. During the quarter, 51% of customers were Starbucks Rewards members.
Chief Operating Officer and North American President John Culver told analysts that cold beverages accounted for 75% of drink sales during the quarter. Sales of espresso drinks spiked 34%. Culver also said that peak hours are back to pre-pandemic times. Last year, cafes' busy times shifted to late mornings and early afternoons as consumers swung by for a pick me up.
McDonald's, Domino's Pizza and Chipotle Mexican Grill are among the restaurant chains that said staffing challenges dented their latest quarter's U.S. results. Starbucks executives acknowledged that they also experienced staffing troubles. A day earlier, the company announced it will hike its employees' wages at least twice in 2022, bringing the pay floor to $15 an hour faster than previously shared. Roughly 70% of Starbucks' hourly workers joined the company over the last year.
Growth in Starbucks' international markets was muted. International same-store sales grew by 3%.
In China, the company's second-largest market, same-store sales shrank by 7%. Starbucks previously predicted flat Chinese same-store sales growth for the quarter. Cities with local Covid-19 cases were hit the hardest by the resurgence of the virus, but cafes that rely on tourism and travel were also hurt.
"At its peak in mid-August, approximately 80% of our stores in China were impacted by the pandemic," CEO Kevin Johnson told analysts.
The company added 538 net new locations during the quarter. Starbucks has been updating its store footprint, closing some cafes and opening new ones that are better designed for mobile and to-go orders.
Looking to the holiday season, Johnson said that the company is preparing for record-breaking sales. Starbucks is anticipating $3 billion will be added to gift cards.
For fiscal 2022, the coffee chain is anticipating its GAAP earnings per share to shrink by 4% and adjusted earnings per share to rise by at least 10%. Its outlook for earnings falls below Wall Street's expectations of $3.73, which is more than 15% higher than fiscal 2021. The company said earnings will be at their lowest point in the fiscal second quarter because of wage hikes, but profits will reach their peak by the next quarter.
Starbucks is expecting global same-store sales in the high single digits and net sales of $32.5 billion to $33 billion, above Wall Street's estimates of $32.07 billion. The company plans to add approximately 2,000 net new cafes to its global footprint. Roughly three-quarters of those new locations are expected to be built outside of the U.S.
The company also announced it would resume its share buyback program during its fiscal first quarter.