At first glance, the news Starbucks (SBUX 0.18%) gave its investors Tuesday evening didn't sound so bad.
Reporting on earnings for its fiscal Q2 2022, the coffee restaurateur delivered quarterly sales of $7.6 billion, GAAP profits of $0.58 per share, and "non-GAAP" profits of $0.59 per share -- just as analysts had predicted it would. Total sales climbed 15% year over year, while earnings were up only 4%. But that's just what Wall Street was expecting Starbucks to report, so at least no one was disappointed.
That is to say, no one was disappointed until Starbucks itself disappointed them.
Commenting on how its numbers came out the way they did, Starbucks painted a picture of strong sales growth in the U.S., where same-store transactions grew about 5% year over year, and the amount of money customers spent at Starbucks ("ticket" size) grew 7% -- resulting in total same-store sales growth of 12%.
Outside the U.S., the story was the opposite, with both the number of transactions and the amount of money spent per transaction falling, resulting in same-store sales declining by 8%. And the really bad news came from China, where lockdowns to slow the spread of the COVID-19 pandemic simply devastated Starbucks' business. Indeed, 20% fewer Chinese people visited Starbucks in Q2 2022 than they had a year earlier, and those who did show up spent 4% less, resulting in a huge 23% decline in same-store sales in China.
Obviously, given the erosion of Starbucks' Chinese business in Q1, combined with recent reports that the lockdowns in Shanghai (at least, and perhaps other cities as well) are starting to ease, investors were eager to hear what Starbucks had to say about how soon things might get back to normal in China. They wanted "guidance," and Starbucks management promised to give it to them, writing in the 4 p.m. EDT press release, "The company will discuss fiscal year 2022 financial targets during its Q2 FY22 earnings conference call starting today at 2 p.m. Pacific Time."
But here's the thing: When 2 p.m. Pacific Time (that's 5 p.m. EDT) rolled around, Starbucks actually did not give guidance. Rather, CEO Howard Schultz advised:
Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year. Given the materiality and the high level of ongoing uncertainty around China, accelerating inflation, and the significant investments we are planning, the only responsible course of action for us to take is to suspend guidance for Q3 and Q4.
Granted, that makes total sense. According to data from S&P Global Market Intelligence, China accounts for more than $1 out of every $8 Starbucks makes. If Starbucks doesn't know what's going to happen in China, it can't reasonably be expected to give reliable guidance on its business as a whole.
Still, it's more than a little strange that Starbucks would promise guidance one moment, then change its mind just an hour later.