Starbucks Stock Drops After Massive Decline In China Sales

Topline

Starbucks’ stock slid Thursday afternoon after the company missed its quarterly revenue estimate, in part because of an immense drop in sales across China as the country grappled with tight lockdowns followed by a renewed surge in the spread of the virus, resulting in reduced commerce that hurt retail businesses across the country—one of Starbucks’ largest markets.

Key Facts

The company reported $8.71 billion in quarterly revenue, setting a new record but falling short of Wall Street’s $8.78 billion estimate.

Sales in North America rose 10% but tumbled 13% internationally, largely due to an eye-popping 28% decline in China.

Starbucks also missed on earnings per share, reporting 75 cents after analysts expected 77 cents.

The company’s share price declined more than 3% in after-hours trading to $105.81.

Crucial Quote

“We posted today’s strong results despite challenging global consumer and inflationary environments, a soft quarter for retail overall and the unprecedented, COVID-related headwinds that unfolded in China,” interim CEO Howard Schultz said in a statement.

Big Number

More than 6,000. That’s how many stores Starbucks operates in China across over 230 cities.

Key Background

Last year was a tumultuous one for Starbucks, as its stock tumbled more than 35% in the first half of 2022 before regaining traction in later months. Schultz in March was reappointed for a third stint as company CEO after the previous head of the company, Kevin Johnson, resigned. Schultz has contended with a unionization wave involving more than 250 stores as he pushes for a top-to-bottom company overhaul to cut costs, starting with baristas’ methods for making drinks. China in December moved to lift its longstanding “zero-Covid” policy that had crippled much of its economy and prompted widespread protests, but the end of years of lockdowns brought rapid Covid spread and renewed public alarm about the disease.

What To Watch For

Former PepsiCo executive Laxman Narasimhan will succeed Schultz as permanent Starbucks CEO on April 1.

Further Reading

Starbucks’ New CEO: Here’s What To Know About Laxman Narasimhan (Forbes)

Starbucks Is Rethinking Almost Everything, Including How to Make Frappuccinos (Wall Street Journal)

Source: https://www.forbes.com/sites/nicholasreimann/2023/02/02/starbucks-stock-drops-after-massive-decline-in-china-sales/