Yahoo Finance's Brooke DiPalma discusses various factors currently affecting Starbucks.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back, everybody. Starbucks reported its fiscal first quarter results after yesterday's closing bell. The coffee chain missed estimates on the bottom line. Revenue, though, came in slightly higher than expected at $8.1 billion dollars. You see the stock under a little bit of pressure here, off its worst levels, but down nearly 3/4 of a percent.

Yahoo finance's Brooke DiPalma had the chance to chat with CEO Kevin Johnson following their earnings call. She joins us now with more. So Brooke, what did Johnson have to say about those recent results?

BROOKE DIPALMA: Alexis, their earnings results were largely based upon the impact of soaring inflation, supply chain, and staffing shortages that's hitting the restaurant industry at large. But Kevin Johnson did tell me in particular that the Omicron variant really amplified the effects on all those things. With the rise in cases, the COVID benefits that Starbucks offers for its employees, including isolation pay for any partner that is exposed to COVID-19 or tested positive, spiked in the recent quarter. Now, Alexis, take that and combine it with third-party providers also seeing similar staffing shortages, forcing the company to go to what Kevin calls the [? spot ?] market and pay for transportation or delivery to allow the company to meet a higher demand at a higher cost. In the earnings call, Kevin acknowledged a future impact of these pressures on the customer.

KEVIN JOHNSON: We anticipate supply chain disruptions will continue for the foreseeable future. We've already taken pricing actions this fiscal year-- one in October of 2021, and another in January 2022. And we have additional pricing actions planned through the balance of this year, which play an important role to mitigate cost pressures, including inflation, as we position our business for the future.

BROOKE DIPALMA: And now, higher prices are determined by what Kevin said is AI analytics as well as a team who is monitoring to make sure that these higher costs are well-received by customers. But those price hikes will take effect in the back half of the year. Kevin did tell me more specifically that it'll probably be spring or summer when the next action happens.

But I do want to know that we did see that beat on the top line. The customer demand is still very high. Here in the US, we saw sales up 18%. And taking a closer look at the monthly visits in October, they were up 7%. November, they were up 13.2%, and then in December, up a whopping 9.8%. That's according to data analytics company Placer.AI.

But overseas, it was a bit of a different story. International sales were down 3%, much lower than the estimated, based upon Bloomberg consensus, of up 1.27%, largely in part due to the Zero COVID-19 policy in China. There, Alexis, same store sales decreased by a whopping 14%.

[? - ?] And Brooke, also, just to switch gears a little bit, you know, the company also seeing more stores in the push to unionize. 54 locations across 19 states. What did the CEO have to say about that?

BROOKE DIPALMA: You know, [? Corina, ?] he did acknowledge that these labor unionization efforts are happening. But he emphasized that only two company-operated stores are currently certified union, that there's roughly 50 that have filed to the National Labor Relations Board to go through the process to see if those partners even want to take a vote for a union. He said more specifically, quote, "We're following the National Labor Relations Board process, and we respect that process, and we'll continue to do that. But I would also mention that we have a few thousand stores in our channel-licensed partners, like many of the big grocery channels, for example, that have a Starbucks in their grocery store that are unionized. So we've got experience with our licensed partners on how they run unionized stores. At the end of the day, we always listen to our partners. We always will, whether they're union store or not."

Now, those licensed stores include stores based here in the US, like Kroger, Target, Safeway, and Albertsons, and he did mention that $1 billion investment that the company made in wages back in October. That brought the average hourly wage to $17 an hour, with an hourly wage ranging from $15 to $23. But you cannot ignore the union labor relations that is happening across the US. On February 23rd, the count for three more stores in Buffalo is set to take place. And it'll be interesting to see how Starbucks continues to work with its partners as more look to unionize, and more stores potentially look to make that vote.

ALEXIS CHRISTOFOROUS: Yeah. Between the unionization push and higher inflation and those labor costs, there are definitely some challenges ahead for Starbucks. All right. Brooke DiPalma, thanks for breaking that down for us.