Start saving up the quarters and accumulating rewards points, the price of Starbucks (SBUX) java is headed higher as the coffee giant battles labor inflation and challenging sales amid the ongoing pandemic.
“However, we have and we will continue to take intentional steps to offset these pressures including selectively accelerating price increases, tightly managing numerous cost areas as well as actioning throughput initiatives across our operations,” said Starbucks CFO Rachel Ruggeri said on a Tuesday evening earnings call.
The company disclosed it raised prices on Oct. 1 in large part due to inflationary pressures.
More are on the way.
Explained Ruggeri, “As inflation continues to grow we saw that we needed to take additional action and we did so effective Jan. 1. So we’ve taken two moves around pricing to help mitigate the challenges that we’re seeing. Now we also have additional pricing actions that we have planned for the balance of the year that will additionally help offset the trends in some of the cost pressures that we’re seeing.”
On the labor front in October, the company boosted its U.S. hourly wage to $15 per an hour, up from the $12 dollars an hour rate then. This announcement meant that the average pay for all Starbucks’ U.S. hourly partners is nearly $17 per an hour, with average hourly rates ranging between $15 to $23.
The decision to jack-up prices on its consumers — and for its hope for better profits as a result — comes after a thoroughly disappointing quarter for Starbucks in the minds of most on Wall Street. The company missed Wall Street projections for profit margins, China same-store sales (weighed down by China’s zero-COVID policy) and international same-store sales.
U.S. same-store sales narrowly beat analyst projections.
Here is how Starbucks performed compared to Wall Street estimates:
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Net Sales: $8.1 billion vs. $7.96 billion
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Total Comparable Store Sales: +13% vs. +13.3%
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U.S. Same-Store Sales: +18% vs. +17.5%
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International Same-Store Sales: -3% vs. +1.27%
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China Same-Store Sales: -14% vs. -9.25%
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Adjusted Operating Margins: 15.1% vs. 16.9%
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Adjusted Diluted EPS: $0.72 vs. $0.80
Starbucks shares fell about 2% in early trading.
What’s more, Starbucks served up a lowered outlook for its current fiscal year.
The company now sees its current fiscal year GAAP earnings per share dropping by 4% to 6%. Previously, it estimated a decline of 4% or less. Non-GAAP earnings per share growth is pegged in a range of 8% to 10% compared to a prior outlook of at least 10%.
Correction: The Starbucks earnings call was on Tuesday, Feb. 1. The day was misstated in an earlier version of this article.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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