WikiFX report: Starbucks Brews Up Solid Earnings

Starbucks perked up its profit by 18 percent in its fiscal second quarter, as more customers visited its cafes in most parts of the world. The coffee giant also raised its forecast for the year on the better-than-expected results. Shares of coffee giant Starbucks surged 9.8% higher yesterday after delivering fiscal second quarter financial results that were better than expected by Wall Street.

Investors had been worried ahead of the earnings report that the COVID related lockdowns in China would weigh on revenues and profits for Starbucks. Shares have been sliding ahead of earnings on those fears, and investors were right to be fearful as the company reported a 23% drop in same-store sales in China for the quarter. Overall, the international same-store sales dropped by 8% for the quarter.

Moreover results from the U.S. helped offset the losses overseas. Comparable store sales in the U.S. rose by 12%, helped by a 5% increase in transactions and a 7% increase in ticket size. Overall, same-store sales in the U.S. rose 7%. New store openings helped further and Starbucks reported a 15% year-over-year increase in revenues.

Earnings rose by just 4% however as rising costs hit the bottom line. Starbucks decision to raise wages and benefits for its employees combined with inflationary pressures to increase expenses fairly substantially.

Those wage and benefit increases are part of a larger strategy to improve employee retention, and to stave off unionization efforts. Starbucks interim CEO Howard Schultz said the moves will “add the capacity we need in our U.S. stores today and position us ahead of the coming growth curve ahead.”

Shares closed the other day at $81.64 a share, which is still far off the $116.24 per share at the start of the year. Shares are down more than 30% since the start of the year, even with the large gain realized yesterday, which may mean theres far more upside coming.