© Reuters. FILE PHOTO: A Starbucks sign is shown on one of the company’s stores in Los Angeles, California, U.S. October 19, 2018. REUTERS/Mike Blake/File Photo
By Deborah Mary Sophia and Kailyn Rhone
(Reuters) -Starbucks missed market expectations for quarterly comparable sales on Tuesday, with demand for its coffees and cold drinks showing some signs of tapering in the North American and international markets even as China sales rebounded sharply.
The world’s largest coffeehouse chain has targeted its younger, wealthier U.S. customer base by launching new drinks and promoting food options that have helped drive up average customer sales. But quarterly transactions climbed just 1% in North America, slowing from a 6% increase in the prior quarter.
However, Starbucks (NASDAQ:) saw a sharp recovery in China, with comparable sales surging 46% in the third quarter. That rebound was in line with its expectations and is expected to last, company officials told investors in a call.
“China, I think, is what’s holding the stock up here,” Sante Faustini III, director of product intelligence at research firm M Science, told Reuters.
Shares of Starbucks were marginally lower in after-hours trading even as the coffee chain topped Wall Street estimates for quarterly profit and slightly lifted its outlook for full-year earnings growth.
M Science’s Faustini III, said while the 7% rise in North America comparable sales as “light,” saying the focus was on booming China sales.
Starbucks projected average weekly sales in China to grow in the low- to mid-single digits range in the current quarter, resulting in similar comparable sales growth.
It also cited a record more than 20 million members for its customer loyalty program in China, it’s largest market outside the United States, which has 31.4 million rewards members.
Chinese travel in cities, as tracked through subway rides, rose roughly 128% in the quarter and returned to 2019 pre-pandemic levels, according to analysts at BofA Global Research, noting Starbucks sales trends typically coincide with subway data.
Overall, the company now expects full-year earnings growth in the range of 16% to 17%, compared to its prior outlook of toward the low end of 15% to 20% growth range.
It maintained its forecast for full-year comparable sales growth near the high end of a 7% to 9% range, compared to Wall Street’s expectations of an 8.7% rise among 14 analysts polled by Refinitiv.
Starbucks executives told investors said they expected revenue pressure to continue in the fourth quarter, driven by at-home coffee business, and for pricing trends to moderate in the final quarter following several months of price hikes.
Global comparable sales at Starbucks rose 10% compared with analysts’ expectations for a 11.8% rise, Refinitiv IBES data showed. In its international segment, same-store sales rose 24%, also missing estimates of 25.7%.
Still, the company expanded its adjusted operating margin to 17.4% in the quarter ended July 2, from 16.9% in the prior year, as easing costs of commodities helped offset impact from increased investment in wages and worker benefits.
Excluding items, Starbucks posted a profit of $1 per share, beating analysts’ average estimate of 95 cents.
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