Starbucks Corp reported sales that exceeded expectations, as US consumers forked over more for their lattes amid higher economy-wide inflation, driving the shares higher in late trading on Thursday.
The key measure of same-store sales rose 7 percent in the quarter ended Oct. 2 — above the average estimate of 4.1 percent global growth compiled by Bloomberg. Internationally, same-store sales shrank, but less than anticipated by analysts.
The company laid out an optimistic outlook for the next 12 months in a call with analysts.?
Photo: Bloomberg
The results show that Starbucks’ signature lattes and frappuccinos remain a luxury that consumers are willing to pay for, even if they cost more. The majority of the 11 percent comparable-store sales growth in North America was driven by an increase in the amount spent per order. There was only a slight increase in transactions, suggesting that store traffic is stable, but customers are paying more.
The company pointed to “strategic” price increases that were “primarily in North America.”
Interim CEO Howard Schultz told analysts that Starbucks is not looking to raise prices more, yet the company has not seen any impact on loyalty or orders when it increased prices before.
He added that the company’s customers have gotten younger, and those consumers have a significant amount of discretionary income at their disposal.
The shares rose 1.3 percent to US$85.81 in late trading at 5:54pm in New York, paring some gains. The stock has declined 28 percent this year through Thursday’s close.
The company expects US comparable sales to be at the high end of its prior guidance for growth of 7 percent to 9 percent this fiscal year. Starbucks also sees earnings in the period near the top of the projected 15 percent to 20 percent growth range.
Operating margin fell from a year earlier, reflecting pressure from inflation, as well as the company’s initiatives to boost pay and training for baristas, and improve equipment to make their jobs easier. The company is looking to blunt a unionization drive at its US locations by raising pay and improving benefits.
Inflation, commodity and supply-chain headwinds will continue in the current year, albeit less than last year, Starbucks said.
In China, where Starbucks has more than 6,000 stores, sales were limited by COVID-19 resurgences and government restrictions. Still, the 16 percent decline in comparable sales there was better than expected. Analysts had predicted a decrease of nearly 22 percent.
“We anticipate the current COVID-related uncertainty to continue” in China, Schultz said, adding that recent virus resurgences have “meaningfully” reduced traffic in cafes there.
However, he reiterated general optimism on the business’s trajectory there, saying Starbucks could become the No. 1 Western brand in the country due to the company’s intensive investment.
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