BANGALORE (REUTERS) – Starbucks suspended its guidance for the rest of its fiscal year on Tuesday (May 3) as sales growth missed Wall Street targets because of China's tough Covid-19 curbs.
Comparable sales in China, where the chain has rapidly expanded in recent years to tap rising coffee consumption, declined 23 per cent, overshadowing 12 per cent growth in North America.
China's strict lockdown measures to meet its zero-Covid-19 policy have upended operations of most global companies that have a significant presence in the Chinese market, including Apple, Gucci parent Kering and Taco Bell owner Yum China.
"I remain convinced Starbucks' business in China will be eventually larger than our business in the US," chief executive officer Howard Schultz said in a call with investors.
The company expects "even greater impact" to its third-quarter results because of the timing of lockdowns in Shanghai and resurgence of the virus in Beijing and other cities.
Even so, demand in its US stores has been "relentless", Mr Schultz said. Shares rose 5 per cent in extended trading following the results.
"Demand and revenue are key drivers," said Mr Ivan Feinseth, chief investment officer at Tigress Financial Partners. Tigress owns Starbucks stock on behalf of clients and accounts it manages. "Everything is going well in spite of the pandemic, and strength in the United States offsets the weakness in China."
Global comparable sales at Starbucks, which recently brought Mr Schultz back to lead the company amid a wave of unionisation at its US stores, rose 7 per cent in the second quarter, while analysts polled by Refinitiv had expected a 7.1 per cent growth.
Mr Schultz said his latest term as CEO will be temporary, and that he and the board hope to name a successor by autumn, with the aim for that person to take over entirely by the first calendar quarter of 2023. Mr Schultz plans to remain on the board afterwards.
Higher costs for labour, freight and commodities ate into North American operating margins, which contracted to 17.1 per cent from 19.3 per cent in the prior year.
Total net revenue rose to US$7.64 billion (S$10.57 billion) from US$6.67 billion a year earlier, as the company opened 313 net new stores during the quarter. Analysts had expected US$7.59 billion in quarterly revenue.
