Starbucks misses sales estimates on China COVID curbs

© Reuters. FILE PHOTO: The Starbucks logo is seen outside the new Starbucks cafe in Warsaw March 6, 2011. REUTERS/Kacper Pempel

By Praveen Paramasivam and Hilary Russ

(Reuters) -Starbucks Corp reported quarterly comparable sales below Wall Street expectations on Tuesday, as tough COVID-19 curbs in China dented sales in the country and muddied its strong showing in the U.S. market.

Comparable sales in China, where the chain has been rapidly expanding in recent years to tap rising coffee consumption, declined 23%, overshadowing 12% growth in North America.

China's strict lockdown measures to meet its zero-COVID policy have upended operations of most global companies that have a significant presence in the Chinese market, including Apple (NASDAQ:AAPL), Gucci-parent Kering (EPA:PRTP) and Taco Bell-owner Yum China.

Global comparable sales at Starbucks (NASDAQ:SBUX), which recently brought back former Chief Executive Officer Howard Schultz to lead the company at a time when workers at many coffee houses are unionizing, rose 7% in the second quarter, while analysts polled by Refinitiv had expected 7.1% growth.

Shares rose 1.7% in extended trading following the results.

Despite strong U.S. sales, operating margins in North America contracted to 17.1% from 19.3% in the prior year due to higher costs for labor and goods.

Starbucks has raised wages for employees. Even so, more than 50 U.S. cafes have elected to join the Workers United union, while five stores voted against the union, out of roughly 240 altogether that have sought to hold elections since August.

Total net revenue rose to $7.64 billion from $6.67 billion a year earlier, as the company opened 313 net new stores during the quarter. Analysts had expected $7.59 billion in quarterly revenue.

Net earnings rose to $674.5 million, or 58 cents per share, in the latest quarter from $659.4 million, or 56 cents per share, a year earlier.

Excluding items, Starbucks earned 59 cents per share, in line with estimates.