FILE PHOTO: Starbucks cups are pictured on a counter in the Manhattan borough of New York City, New York, U.S., February 16, 2022. REUTERS/Carlo Allegri/File Photo

By Juveria Tabassum and Waylon Cunningham

(Reuters) -Starbucks posted on Wednesday its first quarter of gains in global comparable sales after nearly a year and a half, led by international markets, though growth still eluded its U.S. operation, and margins came under pressure from the surging cost of wholesale coffee beans.

The results follow several quarters of falling sales that spurred the hiring of Brian Niccol as CEO in August 2024, who embarked on a brand reset known as "Back to Starbucks." Since taking the top job, Niccol has closed hundreds of stores, simplified the menu and made efforts to speed up service. He told analysts the quarter "marks a turn" for the coffee chain's U.S. operations.

However, the high cost of coffee beans will act as a headwind for at least the next two quarters, executives said. Global prices for raw arabica beans are up more than 20% this year after soaring 70% in 2024. That, along with hefty tariffs on imported goods and the cost of its revamp, squeezed margins.

Global comparable sales rose 1%, but in the United States, its largest market, comparable sales were flat and the average spending per customer fell.

U.S. consumers are increasingly watchful about spending on dining out, as economic uncertainty and inflation squeeze budgets. Burrito chain Chipotle Mexican Grill cut its annual targets for the third time this year, and said households earning below $100,000 have pulled back sharply.

Niccol said Starbucks would be judicious with price increases next year and said he did not expect any broad menu price hikes. CFO Cathy Smith said the chain's turn away from discounts last year increased average transaction amounts.

"Turnarounds are difficult to forecast, and while we have good reason to believe that our U.S. company-operated comparable sales should build through the year, we know recoveries are not linear," Smith said on a post-earnings call.

The company said in July it would invest more than half a billion dollars of additional labor hours into its U.S. company-operated stores over the next year.

While Starbucks hedges against a rise in coffee prices, the commodity has faced supply snags due to geopolitical volatility, including U.S. President Donald Trump's 50% tariffs on top grower Brazil, and climate issues.

"Their cost structure — with rent, labor, and coffee — is challenging. There are so many competitors, whether in coffee or other caffeinated drinks, that they don't have the pricing power they used to. At least management is realistic about the challenges ahead of them," said Brian Jacobsen, chief economist at Annex Wealth Management.

Restaurant industry consultant John Gordon said his takeaway from the results is that Starbucks’ recovery will take “a lot longer” than Wall Street expected, given the contraction in operating margin.

Starbucks' shares edged lower in extended trading after its fourth-quarter earnings of 52 cents a share missed estimates of 56 cents according to LSEG data. Its operating income margin fell to 2.9%, down from 14.4% at the same time a year ago.

RESTRUCTURING CONTINUES

The company expanded its restructuring efforts in September to close underperforming stores, including its flagship, unionized Seattle roastery. It said on Friday that it had closed 627 stores in the fourth quarter as part of that plan.

CFO Smith said the company expects to provide a financial outlook at an investor event in January. Starbucks suspended guidance shortly after Niccol took the helm.

Starbucks is also in a stalemate with the union representing baristas at about 550 stores in the U.S., with talks hitting an impasse last year, and the union planning to vote this week on whether to authorize an unfair labor practice strike.

Both sides blame the other for ending talks late last year and say they are ready to return to discussions.

In China, Starbucks' second-largest market outside of the United States, the company reported a 2% rise in comparable sales, after a return to growth in the metric last quarter.

Starbucks has lowered prices for non-coffee products in China, and has been trying to offer more customization and local flavors.

The company is nearing a sale of a majority stake in its China business, as its market share has declined in recent years due to fierce competition from local coffee chains that offer cheaper products amid an economic slowdown that has changed consumer habits.

(Reporting by Juveria Tabassum in Bengaluru and Waylon Cunningham in New York; Editing by Anil D'Silva and Richard Chang)