Inflation, increased labor costs, unionization efforts and a hit to the Chinese arm of the business did not keep Starbucks from beating Wall Street expectations during Q3, which wrapped July 3.

The chain reported Tuesday it ended the quarter at 84 cents per share versus a 75 cents expectation. Revenue hit $8.15 billion, slightly higher than analysts' predictions of $8.11 billion. China's same-store sales fell 44%, however.

"I'm particularly pleased that we delivered our results in the face of stiff ongoing consumer economic and inflationary headwinds; COVID lockdowns across China that kept Shanghai, our largest China market, largely closed for two months, and that continues episodically today; and continuing shifts in customer traffic and behaviors, including materially reduced office occupancy in our largest urban markets," Howard Schultz, interim CEO, told investors during Tuesday's call.

He said the Q3 performance underscored the brand's decision to invest in its people and technology innovation.

"And our performance demonstrates that the Starbucks Experience is more relevant and important than ever in today's unsettled world," Schultz said. "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.

The chain delivered a record-breaking revenue performance because of customer demand globally, balanced with the team's ability to execute investments despite macroeconomic and operational headwinds, according to CFO Rachel Ruggeri.

"Our commitment to deliver shareholder value has not wavered, and we are making the right decisions and investments today for the future of Starbucks," she said during the call.

The plan for China

Belinda Wong, chairman of Starbucks China, said stores in China were making a comeback despite facing its most severe COVID disruption since the onset of the pandemic. Shanghai, the area's largest market with over 940 stores, was completely locked down for nearly two-thirds of the quarter. Customers, however, began returning in early June.

"We're seeing a strong positive correlation between comp improvement and the easing of COVID restrictions, giving us confidence that we'll see both a strong rebound in sales and improved flow-through once mobility restrictions in China are fully lifted," Wong told investors.

Although the recovery in China will be nonlinear, Wong said the team has deepened partnerships with suppliers, landlords and local authorities, streamlined and adapted supply chains, added chapters to the COVID playbook and positioned the business for accelerated growth as soon as COVID restrictions are fully lifted.

"Together, these efforts have provided us the flexibility and muscle we need to continue to operate as efficiently as possible given current market challenges," Wong said. " As a result, we were able to move quickly to reopen 90% of our Shanghai stores just within a few days of the city reopening."

The brand is focused on expansion, opening 107 stores in Q3, including the entry into three cities and ending the quarter with 5,761 stores across 228 cities.

"And we remain on track to have 6,000 stores in China by the end of this year," Wong said. "Our new stores continue to achieve best-in-class returns and profitability. The investments we're making to elevate our customers' digital experience and strengthen their digital connection to Starbucks are paying off."

Q3 highlights

  • Consolidated net revenues up 9% to a quarterly record $8.2 billion.
  • Comparable store sales up 3% globally; up 9% in the U.S.
  • Global comparable store sales increased 3%, driven by a 6% increase in average ticket, partially offset by a 3% decline in comparable transactions. North America comparable store sales increased 9%, driven by an 8% increase in average ticket and a 1% increase in comparable transactions; U.S. comparable store sales increased 9%, primarily driven by an 8% increase in average ticket.
  • International comparable store sales decreased 18%, driven by a 15% decline in comparable transactions and a 4% decline in average ticket; China comparable store sales decreased 44%, driven by a 43% decline in comparable transactions and a 1% decline in average ticket.
  • Opened 318 net new stores in Q3, ending the period with 34,948 stores globally, 51% company-operated and 49% licensed.
  • Starbucks Rewards loyalty program 90-day active members in the U.S. increased to 27.4 million, up 13% year-over-year.

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