Praveen Parmasivam and Hilary Russ

(Reuters) –Starbucks Corp posted quarterly comparable sales that fell below Wall Street’s expectations Tuesday as tough COVID-19 restrictions in China hampered sales and masked its strength in the U.S. Market.

Comparable sales in China where the chain has experienced rapid expansion in recent years in order to tap growing coffee consumption, fell 23%. This was more than the 12% increase in North America.

China has tightened its controls to comply with its zero-COVID policy. This has disrupted the operations of many global companies, such as Apple (NASDAQ:) and Gucci-parent. Kering Yum China Taco Bell owner Yum China (EPA:).

Starbucks (NASDAQ): Global comparable sales increased 7% in the second-quarter, compared to 7.1% for analysts polled.

Following the announcement, shares rose by 1.7% during extended trading.

Even though the U.S. had strong sales, North American operating margins contracted to 17.1% from 19.3% last year because of higher labor costs.

Starbucks has increased wages for its employees. Starbucks has raised wages for employees in the United States. However, 50 U.S. coffee shops have voted to join Workers United, and five other stores voted against. This is out of a total of 240 that attempted to hold elections since August.

The company’s total net revenue increased to $7.64 Billion from $6.67 Billion a year ago. This was due to the opening of 313 new stores in the fourth quarter. Analysts were expecting $7.59 Billion in quarterly revenue.

From $659.4million, which was 56 cents per shares a year ago, net earnings increased to $674.5 Million, or 58 Cents per Share, in the most recent quarter.

Starbucks earned 59c per share, excluding items. This is in line with the estimates.