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Starbucks Corp. produced better earnings than expected in the fiscal third quarter, despite a massive drop-off in comparable sales in China
Starbucks
SBUX,
reported fiscal third-quarter profit of $912.9 million, or 79 cents a share, on sales of $8.15 billion, up from $7.5 billion a year ago. After adjusting for restructuring, impairment and integration costs, the coffee-store chain reported earnings of 84 cents a share, a decline from $1.01 a share a year ago. Same-store sales, an important metric for retail chain stores, came in at 3%, as sales tanked in China during COVID-related lockdowns.
Analysts on average were projecting adjusted earnings of 77 cents a share on sales of $8.15 billion, with same-store sales growth of 3.2%, according to FactSet. Starbucks shares increased about 1% in after-hours trading immediately following the release of the results, after closing with a 1.4% decline at $83.71.
“We have clear line of sight on what we need to do to reinvent the company, elevate our partner and customer experiences and drive accelerated, profitable growth all around the world,” interim Chief Executive Howard Schultz said in the announcement. “The Q3 results we announced today demonstrate the early progress we have made in just four short months.”
Starbucks shares have largely been in a holding pattern since March 16, when founder Schultz was reinstated as chief executive amid a unionization push at Starbucks locations around the U.S. The stock has declined 3.9% since Schultz was brought back, slightly better than a 5.5% decline for the S&P 500 index
SPX,
Schultz suspended Starbucks’ stock repurchases and ditched its financial guidance for the second half of the fiscal year, while promising increased wages and benefits for workers but cautioning that the company is prohibited by law “from promising new wages and benefits at stores involved in union organizing.” Starbucks has increased prices twice in the past calendar year while citing rising costs for labor, and has said more price increases are expected this year.
Schultz laid out his plans for a “reinvention” in a letter to Starbucks partners last month, but his broad plans for “bold moves” lacked specificity on financial goals and plans, leaving analysts concerned about the path forward, especially in regard to the U.S. and China.
“There is complete lack of visibility around Howard Schultz’ go-forward investments in the U.S. business, with regard to magnitude and duration,” Wedbush analysts wrote in a preview of Tuesday’s report, while maintaining a neutral rating and $81 price target on the stock. “There is continued uncertainty around SBUX’s China business. Even if China reopens, one must admit, it is not the same place to do business in as it was a decade, or even five years, ago.”
Starbucks disclosed that same-store sales in North America rose 9%, almost all of which was attributable to higher prices. They declined 18% internationally with a 44% decline in China.
Starbucks executives did not provide a fourth-quarter forecast in Tuesday’s announcement, saying only that “the company’s guidance remains suspended for the balance of this fiscal year.” A conference call is scheduled for 5 p.m. Eastern.
