Starbucks Corporation reported its first quarter results on Wednesday, with lower-than-expected sales due to the COVID store shutdowns in China. Global same-store sales increased by 5%, but this was due to higher prices as transactions were down 2%. During the conference call with investors, Starbucks’ interim CEO Howard Schultz said that at its peak nearly 30% of their 6,000 stores had closed due to China’s zero-COVID policy resulting in a 29% drop in same store sales.
Despite these significant losses, Starbucks is optimistic about their second largest market outside the U.S., and are on track for 9,000 stores by 2025. “We have seen a significant recovery from our store closures in early 2020 and we are pleased with our progress towards resuming normal operations in China and other affected markets” said Schultz during the conference call.
In terms of financial performance, total revenues for the quarter decreased 4% year-over-year to $6 billion while earnings per share (EPS) declined 11%, down to $0.68 compared to $0.77 a year ago. Operating income also dropped 8% year-over-year despite a $1 million increase in operating margin driven by cost reduction initiatives implemented throughout 2021 and 2022. In an effort to mitigate losses caused by store closures, Starbucks has shifted focus to digital channels such as mobile ordering and delivery services which saw strong growth during the quarter; however, these digital sales did not make up for lost revenue from physical locations.
Conclusion: The company is confident that it can recover after this setback due to its strong brand recognition and loyal customer base around the world. The company’s long-term strategy remains unchanged despite current challenges posed by COVID lockdowns and shutdowns as they remain focused on driving growth through new product innovation and expanding into new markets both domestically and abroad. Investors should keep an eye on how quickly Starbucks can get back on track as it looks to rebound from these lower than expected first quarter results.
