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Starbucks To Hike Prices To Offset Inflation; Lowers Profit Guidance

Published on Feb 2 2022 4:58 PM in Restaurant tagged: Starbucks

Starbucks To Hike Prices To Offset Inflation; Lowers Profit Guidance

Starbucks Corp will raise menu prices in 2022 and reduce some spending to offset soaring costs for labour and goods, as rising COVID-19 cases has prompted the coffee chain to lower estimates for profits this year.

Missed Estimates

The company missed estimates for quarterly profits and comparable sales as the fast-spreading Omicron variant of COVID-19 also led to delayed office reopenings and new restrictions in China, the company's fastest growing market.

Shares

Shares fell slightly in extended trading on Tuesday 1 February, following a 16% drop last month.

Paying More

Restaurants are paying more for everything from chicken and cooking oil to packaging and transportation services amid record inflation and COVID-19 disruptions, and many, including Starbucks have raised wages amid the labour shortage.

The extra costs have eaten into margins. McDonald's profits also missed estimates when it reported its fourth quarter earnings.

Profits And Adjusted Earnings Per Share Growth Forecast

Similarly, Starbucks reported profits of 72 cents per share, missing Wall Street estimates of 80 cents. The company revised its expected adjusted earnings per share growth forecast for 2022 to 8-10%, from at least 10% previously.

Training And Isolation

The Seattle-based chain - the workers of which in more than 50 of its US stores are seeking to unionise - has also paid more to train new employees and for them to isolate after exposure to COVID-19.

CEO Statements

"When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations," CEO Kevin Johnson said during a call with investors.

After hiking menu prices in October and January, the chain plans to raise them again in 2022 and will cut spending on marketing and promotions, Johnson said.

Products Not Specified

Starbucks did not specify the products for which it would raise prices. A venti cappuccino is now $5.25.

Global Comparable Sales

Global comparable sales rose 13% in the first quarter ended Jan. 2, Starbucks said, while analysts polled by Refinitiv IBES had expected growth of 13.2%.

Same-Store Sales

Same-store sales in the international division declined 3%, reflecting a 14% drop in China. Analysts had expected a 0.5% increase in the international segment.

China

Several Chinese cities have closed seating areas and restricted movement to curb COVID-19 ahead of the Winter Olympics, knocking the coffee chain's revenue. The brand also came under fire in the country after a report said two of its stores used expired ingredients.

United States

Comparable sales in the United States jumped 18%, benefitting from new cold beverages, higher prices and an increase in rewards members.

Total Net Revenue

Total net revenue rose 19% to $8.1 billion, while analysts had expected $7.95 billion.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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