Why Starbucks Stock Surged Today

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What happened

Shares of Starbucks (SBUX 9.84%) jumped 9.8% on Wednesday after the coffeehouse colossus delivered second-quarter financial results that were better than many investors feared. 

So what 

Ahead of Starbucks’ earnings release, shareholders were concerned that coronavirus-related lockdowns in China would weigh heavily on its sales and profits. Those fears proved to be well-founded. The restaurant chain’s comparable-store sales plunged 23% in China, which resulted in Starbucks’ international same-store sales shrinking by 8%. 

Yet the situation in the U.S. was far brighter. U.S. comps climbed 12%, driven by a 7% rise in average ticket size and a 5% increase in transactions. That led Starbucks’ overall same-store sales to grow by a solid 7%.

Better still, new store openings helped to drive Starbucks’ companywide revenue up by 15% to $7.6 billion.

Image source: Getty Images.

However, Starbucks’ costs rose due in part to inflation and the company’s decision to enhance wages and benefits for its employees. These cost pressures contributed to a 2.4-percentage point decline in Starbucks’ operating margin, to 12.4%. Its earnings per share, in turn, rose by only 4% to $0.58.

Now what

Starbucks hopes that boosting pay and training will help to improve employee morale and retention, as well as to stave off unionization efforts at its stores. Interim CEO Howard Schultz also wants to strengthen staffing levels to prepare Starbucks for a post-COVID economic recovery.

“The investments we are making in our people and the company will add the capacity we need in our U.S. stores today and position us ahead of the coming growth curve ahead,” Schultz said.