Starbucks Corp (NASDAQ:SBUX) dropped over 5% in after-market trade after the coffee chain said it would have to raise prices and cut spending on marketing and promotions as it looks to cope with higher cost inflation.
First-quarter numbers overnight from the Seattle-based group revealed US like-for-like sales rose 18% and global LFL sales were up 13%, with China, its second-largest market, sales shrinking 14%.
Total revenue climbed 19% year-on-year to US$8.1bn.
It reported earnings per share of 72 cents per share, which was shy of Wall Street's 80 cents forecast.
"Although demand was strong, this pandemic has not been linear, and the macro environment remains dynamic as we experienced higher-than-expected inflationary pressures, increased costs due to Omicron and a tight labour market," Starbucks said.
For the full year, management said increased costs due to Omicron were now expected to further push EPS down to a range of 4% to 6%, with adjusted EPS rising by 8% to 10%, compared to the guidance three months ago for a 4% fall and at least a 10% rise respectively.
"When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations," chief executive officer Kevin Johnson said on a conference call.
He said price hikes were planned for 2022, following rises for menu prices in October and January last year.
Shares in the company dropped sharply after the release of the earnings report but ahead of trading in New York on Wednesday were only down 1% to US$98.00.