(Reuters News) -Starbucks on Wednesday posted its first quarter of global comparable sales growth after nearly a year-and-a-half, led by international markets, though growth still eluded its U.S. operation, which is undergoing an overhaul by CEO Brian Niccol.
However, the company fell short of earnings expectations, and margins fell sharply due to the combination of surging prices for coffee beans, tariffs on imported goods, and the company’s investment costs.
The results follow several quarters of falling sales that spurred the hiring of Niccol in August 2024, who embarked on a brand reset known as “Back to Starbucks.” Since taking the top job, Niccol has closed hundreds of stores, simplified the menu and made efforts to speed up service.
Global comparable sales rose 1%, but in the United States, its largest market, comparable sales were flat and the average spend per customer fell.
“Turnarounds are difficult to forecast, and while we have good reason to believe that our U.S. company-operated comps should build through the year, we know recoveries are not linear,” CFO Cathy Smith said on a post-earnings call.
Starbucks shares fell 0.8% in extended trading. They have fallen about 7% so far this year.
Starbucks’ fourth-quarter earnings of 52 cents a share missed estimates of 56 cents, according to LSEG data.
TARIFF-INDUCED HIT
While Starbucks hedges against a rise in coffee prices, the commodity has faced supply snags due to geopolitical volatility, including U.S. President Donald Trump’s 50% tariffs on top grower Brazil, and climate issues. Global prices for raw arabica beans jumped more than 20% this year after soaring 70% in 2024.
The company expanded its restructuring efforts in September to close underperforming stores, including its flagship, unionized Seattle roastery. It said on Friday that it had closed 627 stores in the fourth quarter as part of that plan.
CFO Smith said the company expects to provide a financial outlook at an investor event in January. Starbucks suspended guidance shortly after Niccol took the helm.
Starbucks is also in a stalemate with the union representing baristas at about 550 stores in the U.S., with talks hitting an impasse last year, and the union planning to vote this week on whether to authorize an unfair labor practice strike.
In China, Starbucks’ second-largest market outside of the United States, the company reported a 2% rise in comparable sales, after a return to growth in the metric last quarter.
Starbucks has lowered prices for non-coffee products in China, and has been trying to offer more customization and local flavors.
The company is nearing a sale of a majority stake in its China business as its market share has declined in recent years due to fierce competition from local coffee chains that offer cheaper products amid an economic slowdown that has changed consumer habits.
(Reporting by Juveria Tabassum in Bengaluru and Waylon Cunningham in New York; Editing by Anil D’Silva and Richard Chang)
