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Earnings Results: Starbucks sees a big rebound in China, but results fail to impress investors

Shares of Starbucks Corp. fell after hours Tuesday after the coffee chain reported third-quarter same-store sales that missed expectations, despite a big rebound in China.

The coffee chain reported fiscal third-quarter net income of $1.14 billion, or 99 cents a share, compared with $912.9 million, or 79 cents a share, in the same quarter last year. Adjusted for restructuring and impairment costs, Starbucks earned $1 a share.

Revenue rose 12.5% to $9.17 billion, compared with $8.15 billion in the prior-year quarter. Same-store sales rose 10% worldwide, with a 7% gain in North America. Those same-store sales jumped 24% internationally, with a 46% gain in China.

Analysts polled by FactSet expected Starbucks SBUX, -0.31% to report adjusted earnings per share of 95 cents, on revenue of $9.29 billion and same-store sales growth of 11%.

Operating margins rose to 17.3%, from 15.9% a year ago, with higher prices and productivity offset by greater spending on employee wages and benefits.

Shares slipped 1.2% after hours on Tuesday. Shares of Starbucks are roughly where they were at the beginning of the year.

Starbucks executives over the past year have said that amid stubborn inflation, customers see coffee as an affordable luxury worth treating themselves to. But Wall Street has struggled to find a reason to push the stock higher amid questions about trends in North America and slowing same-store sales in the years ahead, as well as China’s uneven economic recovery as it shakes off pandemic restrictions.

UBS analysts said that demand in the U.S. was likely still “solid.” But they said that the focus would be on demand in China. Quo Vadis analyst John Zolidis, meanwhile, said that along with China, investors had been focused on the chain’s efforts to set up more drive-through locations in the U.S., and any benefits from higher-priced cold drinks and customizable orders.

The coffee chain also continues to fight with its unionized employees. Bargaining has stalled. Last month, unionized workers accused Starbucks of banning Pride-themed decorations. Starbucks aggressively denied those allegations.

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