Starbucks reported on Wednesday that its global same-store sales grew for the first time in nearly two years, a crucial milestone suggesting the coffee giant’s ambitious turnaround strategy is beginning to resonate with customers.
The positive sales figures, which beat Wall Street expectations, were driven by strong performance in international markets and a notable recovery in the US toward the end of the quarter.
The news sent shares of the company up 2% in extended trading.
A turnaround takes hold, but caution remains
The coffee chain’s global same-store sales rose 1%, surpassing analyst projections for a 0.3% decline.
In its home market, US same-store sales were flat for the quarter, a significant improvement over the 0.9% decrease Wall Street had forecast.
“We’re a year into our ‘Back to Starbucks’ strategy, and it’s clear that our turnaround is taking hold,” CEO Brian Niccol said in a statement.
He noted on the company’s conference call that domestic sales momentum turned positive in September and has continued through October.
However, company leadership tempered the optimism with a dose of realism. CFO Cathy Smith cautioned analysts against celebrating prematurely.
“Turnarounds are difficult to forecast, and while we have good reason to believe that our US company-operated same-store sales should build through the year, we also know that recoveries are not always linear,” she said.
The numbers behind the news
While top-line sales were strong, the company’s bottom line was impacted by significant restructuring costs.
Here’s how Starbucks’ fiscal fourth-quarter results compared with LSEG analyst estimates:
- Revenue: $9.57 billion vs. $9.35 billion expected.
- Earnings per share: 52 cents adjusted vs. 56 cents expected.
The company’s net income fell to $133.1 million, or 12 cents per share, down from $909.3 million a year earlier.
The decline was largely attributed to a restructuring plan that included the closure of 627 locations and about 900 non-retail layoffs during the quarter.
Inside the ‘back to Starbucks’ strategy
To revive its US business, Starbucks has focused intently on improving the customer experience and operational efficiency.
Niccol highlighted that over 80% of company-operated locations now have an average service time of four minutes or less, a key goal of the turnaround.
The company has also shifted its marketing strategy away from promotions and toward highlighting its core coffee offerings and trendy innovations, such as protein-packed cold foam.
The approach appears to be working, as the number of 90-day active Starbucks Rewards members grew 1% from the previous quarter and the prior year.
International growth and a new path for China
Outside the US, same-store sales grew a healthy 3%, fueled by a 6% increase in customer traffic.
In China, the company’s second-largest market, same-store sales rose 2%.
Starbucks has been battling intense pressure from local rivals offering cheaper drinks, and has responded by lowering prices on many of its iced beverages to win back customers.
The company is also actively exploring strategic options for its China business, including selling a stake.
“On the strategic front, we have had very strong interest from multiple high quality partners, all of whom see significant value in the Starbucks brand and team,” Niccol said Wednesday.
We expect to retain a meaningful stake in Starbucks China and remain confident in the long term growth potential in the region.
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