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Starbucks Falls On Mounting Challenges, Lower Forecast For China

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By Dhirendra Tripathi

Investing.com – Starbucks (NASDAQ:SBUX) stock was trading weaker by 2.6% in Wednesday’s premarket trading, pressured by multiple challenges revealed by the coffee chain’s third-quarter report.

Rising raw material prices, higher wages and logistics costs at a time when parts of the world are still under lockdown are some of the headwinds confronting the retail chain, according to the company’s commentary for the fiscal third quarter. which ended in June.

Coffee Futures prices recently hit a six-year high as a cold snap in Brazil has damaged the crop in several regions in the world's largest producer.

Wages have risen as stimulus-loaded economy has boomed and companies have found it hard to meet demand. Hiring has thus been brisk.

The company said it aims to absorb higher product prices by selling more premium varieties.

It also plans to shut down some stores in the U.S. and focus more on its digital operations. This didn't stop it raising its forecast for comparable sales in the Americas and U.S. to grow 21%-22%, up from its previous forecast of 17%-22%.

Same-store sales in China are seen growing 18% to 20%, a sharp cut from the 27%-32% growth forecast previously as the country remains prone to heavy-handed public health measures in response to localized outbreaks of Covid-19.

Third-quarter consolidated net revenue soared 78% from a year earlier to a record $7.5 billion. Same-store sales rose 73% and U.S. sales grew 83% as the pandemic appeared to peak.

Earnings per share came at $1.01, higher than the estimated 77 cents.

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