Starbucks Sales Rise as Cost Pressures Increase at the Coffee Chain

“Although demand was strong, this pandemic has not been linear,” Starbucks Chief Executive

Kevin Johnson

said.

Starbucks and other restaurant chains at some locations are selling food for takeout only, closing dining-room seating or shortening hours during the Omicron variant’s surge. The coffee chain last month expanded paid leave to workers with a Covid-19 exposure regardless of vaccination status, which executives said could hurt staffing levels but was needed for the safety of employees and customers.

Starbucks on Tuesday reported a same-store sales increase of 18% at U.S. stores compared with the year-earlier quarter. Sales weakened in the latter part of the period, during the Omicron surge, the company said. In China, a significant market for the chain, same-store sales fell 14%, Starbucks said.

China’s strict policies aimed at controlling the coronavirus resulted in store closures and reduced sales during the quarter, Starbucks said. The company said it continues to open new stores in its second-largest market, and was operating more than 5,500 stores in China at the end of the quarter.

For the three months ended Jan. 2, Starbucks reported per-share earnings of 72 cents, after adjusting for one-time items, below analysts’ expectations of 80 cents a share, according to FactSet. The chain reported net income of $816 million, up 31% from a year earlier.

The chain’s total sales of $8.1 billion topped expectations of $7.98 billion.

Starbucks shares fell about 1% to $98 a share in after-market trading.

Price increases in Starbucks’s North American stores helped its margins during the quarter, the chain said, while supply-chain costs and increasing wages dragged on profit. Starbucks raised prices last month and last October in the U.S., and plans to increase them further this year to try to offset rising costs, Mr. Johnson said Tuesday.

In the U.S., labor shortages at the chain’s regular suppliers prompted Starbucks to turn to higher-cost vendors to fulfill demand, Mr. Johnson said.

“We anticipate supply-chain disruptions will continue for the foreseeable future,” he told investors on a conference call.

Starbucks on Tuesday reduced its forecast for its earnings and store margins during its current fiscal year because of inflation, labor costs and continuing disruptions stemming from the virus.

The company also spent more on Covid-19 isolation pay for workers, Mr. Johnson said, and on training as the chain has hired more employees.

Starbucks last year said it would boost average U.S. employee pay to $17 an hour, up from roughly $14 an hour at the time. The wage increase and two other recent ones were slated to constitute an additional $1 billion in spending on employees, Starbucks said.

Mr. Johnson said Tuesday that the wage increases remain the right approach as the chain aims to fully staff its stores. “The battle for talent is notable,” he said.

Pay and staffing levels have factored into a unionization push by baristas and other workers that is spreading across Starbucks’s U.S. corporate stores. Two locations in the Buffalo, N.Y., area are now unionized and more than 40 additional stores across 17 states are seeking to vote on unionizing, according to National Labor Relations Board filings.

Ballots are due in a company location seeking to unionize in Mesa, Ariz., on Wednesday, and the NLRB is scheduled to count votes in three additional stores in the Buffalo area later this month.

Write to Heather Haddon at [email protected]