Starbucks reports record sales, boosts benefits

Starbucks’ sales climbed to record levels in its fiscal second quarter, but its profits took a hit from climbing labor costs.

And those costs are set to grow even higher in the coming months as Starbucks introduces new pay raises and other benefits to improve its employee experience — and head off a growing unionization movement.

The Seattle coffee company — which welcomed back former CEO Howard Schultz last month as its interim leader — said revenue rose 15% to a record $7.6 billion in its 13-week quarter, which ended April 3. That was in line with Wall Street’s estimates, according to analysts polled by FactSet.

But net earnings rose just 2% to $674 million. Starbucks’ adjusted earnings of 59 cents per share fell short of analysts’ forecast of 60 cents.

Starbucks noted that it faced higher employment costs during the quarter. Last fall, the company announced a $1 billion investment in employee wages and benefits in an effort to lift U.S. workers’ pay to at least $15 per hour by this summer.

On Tuesday, after a series of meetings with workers around the country, Schultz unveiled $200 million in additional investments in worker pay and training. That includes raises for employees who have been at the company for at least two years as well as a near doubling in training time — from 23 hours to 40 hours — for new baristas and shift supervisors. Starbucks is also reintroducing a coffee mastery program for employees and considering other benefits like increased sick time.

But there’s a catch: Workers who have voted to unionize or stores that have petitioned to hold a union election won’t be eligible for the enhanced benefits announced Tuesday. Instead, Schultz said U.S. labor law requires stores to negotiate their own contracts with Starbucks.

“We do not have the same freedom to make these improvements at locations that have a union,” Schultz said.