Starbucks on Tuesday said higher costs are weighing on profit. It is leading the company to miss quarterly earnings estimates and cut its earnings outlook for fiscal 2022.
The fast-spreading Omicron variant has delayed office reopenings and worsened a labor crunch. It is hurting the United States-based chain, which relies heavily on consumers picking up their coffees en route to work.
Starbucks CEO Kevin Johnson said on the company’s earnings call that he is anticipating higher inflation for the rest of the year, too. Likewise, supply chain issues are also expected to be an issue. As a result, Starbucks is planning more price hikes after already raising prices in October and in January.
Financial Highlights
The coffee giant reported a fiscal first-quarter net income of $815.9 million, or 69 cents per share, up from $622.2 million, or 53 cents per share, a year earlier.
Net sales rose 19% to $8.05 billion, topping expectations of $7.95 billion. Its global same-store sales climbed 13% in the quarter.
Despite staffing issues, the company reported U.S. same-store sales growth of 18% from a year earlier and 12% on a two-year basis. Active 90-day users of its Starbucks Rewards program rose 21% to 26.4 million people.
Outside the U.S., Starbucks saw weaker demand for its coffee. International same-store sales fell 3%, dragged down by China’s sluggish performance. Wall Street analysts surveyed by StreetAccount were forecasting international same-store sales growth of 3.3%.
In China, its second-largest market, same-store sales shrank by 14% in the quarter. The country reimposed travel restrictions on some cities as it faced another wave of Covid cases.
Consolidated net revenues of $8.1 billion grew 19% compared to the prior year. It was mainly driven by a 13% increase in comparable-store sales primarily from lapping the unfavorable impact of business disruption in the prior year due to the COVID-19 pandemic.
The strength of new U.S. company-operated stores compared to the prior year performance of stores closed as a part of our North America Trade Area Transformation
The company opened 484 net new stores in the first quarter of fiscal 2022, yielding 4% year-over-year unit growth. It is ending the period with a record 34,317 stores globally, of which 51% and 49% were company-operated and licensed, respectively.
What’s Next
For the fiscal year, Starbucks expects that its margins will see a hit of about 2% due to factors including inflation, the costs of training new baristas, and Covid pay. By fiscal 2024, Starbucks predicts that its margins will be back to its long-term goal of 18% to 19%. The company had previously said it would return to its long-term margin target by fiscal 2023.
The company reiterated its revenue outlook of $32.5 billion to $33 billion.
