Starbucks underperformed the market's estimates for quarterly comparable sales on Tuesday, despite a dramatic comeback in sales in China. Consumption of its coffee and cold beverages in the North American and foreign markets appeared to be slowing.
The largest coffee shop chain in the world has increased average customer profit by focusing on a younger, wealthier US client base with the introduction of new drinks and food options. However, quarterly sales in North America increased just 1%, slowing from a rise of 6% in the quarter before.
However, Starbucks experienced a sharp revival in China, where comparable sales surged 46% in the third quarter. Officials from the company informed investors on a conference call that the recovery met their expectations and would likely continue.
According to Sante Faustini III, head of product intelligence from research firm M Science, he believes that China is holding the stock price up.
Even though the coffee chain's quarterly profit beat Wall Street expectations and its prediction for full-year growth in earnings was modestly upgraded, shares of Starbucks fell slightly during after-hours trade.
According to Faustini III, while the 7% increase in comparable sales in North America was "light," the main focus remained on growing China sales.
Starbucks expects average sales per week in China to climb in the low- to mid- single digits in the present quarter, leading to similar comparable sales growth.
It also highlighted a record number of over 20 million cardholders for its client loyalty scheme in China, its biggest market outside of the US, with rewards members reaching 31.4 million.
Based on analysis by BofA Global Research, Chinese city travel surged around 128% in the third quarter and recovered to pre-pandemic levels in 2019, citing Starbucks sales trends that often correlate with subway statistics.
Overall, the firm now forecasts full-year earnings increase in a range of 16% to 17%, up from its previous forecast of 15% to 20% growth.
Starbucks officials told investors that they anticipated revenue pressure to persist in the last quarter of the year, triggered by the in-home coffee business, and that pricing trends would moderate in the fourth quarter after a few months of price increases.
Starbucks' global comparable sales increased 10%, compared to analysts' forecasts of an 11.8% increase, according to Refinitiv IBES data. Same-store sales increased 24% in its overseas business, falling short of projections of 25.7%.
Nonetheless, the company raised the adjusted operating margin up to 17.4% in the quarter ended on July 2, from 16.9% in the year before, as lower commodity costs partially offset the impact of higher investment in salaries and worker benefits.
According to Starbucks, it earned $1 per share excluding items, exceeding analysts' average expectation of 95 cents.