When it reported fiscal 2023 first-quarter financial results on Feb. 2, Starbucks (SBUX 0.53%) disappointed Wall Street. Revenue of $8.7 billion and adjusted earnings per share of $0.75 were up 8% and 4%, respectively, compared to the prior-year period. But both figures came in below estimates, helping send shares lower.

In addition to the widely followed headline numbers, what really stood out was the coffeehouse giant's ongoing struggles in China. Here's what Starbucks shareholders need to know about the situation right now in one of the company's most important regions.

Starbucks still feels the pandemic's effects

During the fiscal 2023 first quarter, same-store sales, which measure revenue from stores that have been open 13 months or longer, declined a whopping 29% in China, compared to a 5% increase globally. For fiscal 2022 (ended Oct. 2), comps in China were down 24%. 

The blame at first went to strict lockdown measures put in place by the Chinese government to protect against COVID-19, but these rules were relaxed. Comparable-store sales now remain under pressure because stores were temporarily closed as a result of new coronavirus outbreaks. Starbucks CEO Howard Schultz said that at one point in December, 1,800 of China's 6,090 stores were closed. 

Prior to the pandemic, China's fiscal 2019 Q4 revenue of $763 million represented 11.3% of the company's total sales, making the country Starbucks' second biggest market. So, it's hardly a surprise that any adverse impacts in the nation can have a huge impact on the overall business.

The trends in China contrast starkly with what has been going on in the U.S., which is Starbucks' largest market with 15,952 stores today. In the U.S., comps were up 10% in the most recent quarter, boosted by a 9% increase in average ticket sizes and a 1% jump in transaction counts.

Management remains optimistic

Despite some serious struggles happening in China, the management team remains optimistic about the country's long-term prospects. Starbucks opened 69 net new locations in China in the latest fiscal quarter, with plans to have 9,000 open by the end of fiscal 2025. 

According to Schultz:

Early indications are that it is beginning to happen in our largest cities now, with many Chinese recovered from COVID, people returning to work, border and travel restrictions lifted, mall traffic and retail store activity on the rise, and consumers reintroducing social activity back into their daily lives.

Starbucks shares are up 20% over the past six months, compared to the S&P 500's 3% drop, so shareholders could be shrugging off the negative developments. I think this is the right mentality to have. While the near term is certainly unpredictable as it relates to the health crisis and the government's response in China, I think that the headwind that we're seeing will eventually turn into a tailwind for the business. No one knows when exactly this will happen, but I think it's a likely scenario.

Starbucks has had a presence in China since 1999. The leadership team does expect the second half of fiscal 2023 to be much stronger for China than the first half, but they do admit that the near-term outlook is extremely uncertain. And for this reason, it's best to lean on the side of caution for now.

Nonetheless, the potential unleashing of consumer demand from the Chinese market is definitely something that investors can get excited about, as the nation is known to have the largest middle class in the world, counting over 900 million people in this demographic. This means that it is invaluable for any company to have a large presence in the country. Once things do turn around and show a marked improvement, expect Starbucks' financials to receive a long-awaited boost.

And this entire situation, including the potential Chinese rebound, will likely make the stock's current price-to-earnings ratio of 37 look a lot more compelling in hindsight.