Topline
Coffee giant Starbucks on Tuesday announced record quarterly sales fueled by a strong recovery in China, but still missed analyst estimates as demand fell short in the U.S.
The coffee chain reported a mixed bag of quarterly results.
Key Facts
The company reported $1 in earnings per share on revenue of $9.2 billion–up 12% year over year–beating analysts’ profit expectations of $0.95, as price increases helped beef up margins, but missing revenue projections averaging $9.3 billion, according to FactSet.
Same-store sales–revenues from stores open more than one year–jumped 10%, as U.S. sales were up 7% and international sales climbed 24%—mostly driven by a whopping 46% increase in China.
For the past several quarters, Starbucks has tackled nationwide labor strains and inflationary pressure on ingredients, along with operational challenges in China, its second-largest market.
The earnings are the first under new CEO Laxman Narasimhan, who took the helm of the coffee chain in April, succeeding billionaire Howard Schultz.
Shares fell 1% in after-hours trading immediately after the release.
Key Background
In a bid to boost long-term growth, the Seattle-based coffee chain launched a 3-year reinvention plan last September, saying it would double down on automation, cater to younger customers’ elaborate demands and drive up sales in the Chinese market. Though the same-store sales increase of 10% in the U.S. came under the consensus estimates of 11%, persistent consumer demand in the U.S.—despite a 6% increase in prices over the year—may further contribute to solid domestic sales. In a recent note, Bank of America analysts said Starbucks is viewed as having the “lowest price and value for money,” which suggests “its price points remain competitive” and is “seemingly in defiance of conventional wisdom.” Starbucks also reported a 15% gain in active loyalty membership from the prior period.
Tangent
The continued momentum of recovery in Beijing, shown by a 46% increase in same-store sales, is also a boon, though some investors remain concerned about China’s recovery level. “China has only been reopened for six months,” signaling it could take another 18 months to fully recover its traffic figures, wrote BTIG analyst Peter Saleh in a recent note. Saleh maintains a buy rating on Starbucks stock.
What To Watch For
Whether the faltering overall consumer demand in China would pick up during the remaining half of this year. Though the coffee giant has seen consecutive same-store sales year-over-year increases in China, it remains to be seen whether Starbucks could keep regaining traffic in its biggest international market. The world’s second-largest economy now faces a weakened demand, which led to the government laying out measures on Monday to stimulate consumer spending and boost confidence.
Further Reading
Starbucks Revenue Misses Estimates as Its US Growth Slips (Bloomberg)
Starbucks beats earnings estimates, but sales disappoint despite China boom (CNBC)
Source: https://www.forbes.com/sites/hyunsoorim/2023/08/01/starbucks-posts-record-92-billion-in-sales-but-still-falls-short-of-expectations-amid-price-increases-and-china-recovery/