Starbucks Corporation reported its fiscal fourth-quarter (Q4) earnings early Thursday morning, unveiling a mixed bag of results that showcased the diverging trends in the United States and China. While the coffee giant exceeded most Wall Street estimates, it was evident that US consumers were still indulging in their seasonal favorites like the pumpkin spice and chai tea lattes, while Chinese consumers appeared to be more conservative in their spending.
Starbucks announced that its overall revenue surged by 11%, reaching nearly $9.4 billion, surpassing Wall Street’s expectations of $9.28 billion. Additionally, adjusted earnings per share came in at $1.06, exceeding the estimates of $0.97.
The company’s global same-store sales experienced an impressive 8% increase, driven primarily by a 4% growth in the average ticket size and a 3% rise in customer traffic. In North America, consumers were more than willing to shell out extra for their beloved seasonal beverages and also ordered an unprecedented amount of food, resulting in an 8% boost in same-store sales in the US.
The earlier-than-usual launch of Starbucks’ Pumpkin and fall drink lineup, coupled with heightened promotional activity, likely bolstered customer traffic, particularly in light of the challenging discretionary spending environment. Notably, this quarter marked the 20th anniversary of the pumpkin spice latte.
However, the international markets displayed signs of weakness, particularly in China, where the average ticket size dwindled. Starbucks’ international same-store sales grew by 5%, falling slightly short of Wall Street’s expectations of 6.29%. Surprisingly, China’s same-store sales exceeded estimates, rising by 5%. Nevertheless, despite an 8% increase in foot traffic, consumers ordered less, causing the average ticket size to shrink by 3%.
In the earnings release, Starbucks CEO Laxman Narasimhan expressed confidence in the company’s ability to maintain momentum despite macroeconomic uncertainty, both domestically and internationally.
In recent years, Starbucks has intensified its focus on the international market, recently celebrating the opening of its 20,000th location outside North America. The company also revealed plans to expand its presence in China, with an ambitious target of 9,000 stores over the next two years.
As of the end of the last quarter, the United States (16,352 locations) and China (6,806 locations) still accounted for a significant portion of Starbucks’ global portfolio, constituting 61% of the company’s overall stores. The coffee giant opened 816 new stores during the last quarter, bringing the global store count to 38,038, with 52% being company-operated and the remaining 48% licensed locations.
The company’s loyalty program continued to gain traction, with active reward members in the US surging by 14% year-over-year to 32.6 million in the fourth quarter.
Here’s a quick comparison of Starbucks’ Q4 earnings results with Wall Street expectations:
– Revenue: $9.37 billion versus $9.28 billion expected
– Adjusted earnings per share: $1.06 versus $0.97 expected
– Same-store sales: 8% versus 6.31% expected
– North America and US same-store sales: 8% versus 6.30% expected
– International same-store sales: 5% versus 6.29% expected
– China same-store sales: 5% versus 4.64% expected
– Traffic growth in same-store sales: 3% versus 3.11% expected
– North America: 2% versus 1.45% expected
– International: 6% versus 5.67%
– Ticket growth: 4% versus 3.31% expected
– North America: 6% versus 5.63% expected
– International: -1% versus 5.05% expected
Starbucks has not been immune to the broader challenges impacting food and beverage companies, including wavering consumer sentiment and concerns related to weight loss products. Consequently, Starbucks’ stock performance has lagged behind, with a more than 8% decline in its shares this year, compared to the S&P 500’s gain of 9.5%.
After the market closed on Thursday, Starbucks planned to host an update on its Reinvention Plan, which was initially announced last September and aims to drive growth by 2025. The strategy includes investments in store equipment updates, digital experiences, menu innovation, and expanding international operations.
However, not all investors are convinced of Starbucks’ ability to meet its ambitious goals in the face of post-COVID uncertainty and ongoing labor shortages. Some skeptics, such as Bernstein analyst Danilo Gargiulo, question the company’s focus on expensive equipment upgrades to enhance store productivity and whether these investments will yield the desired results. The coffee giant faces challenges as it strives to balance the contrasting tastes of consumers in the US and China, all while navigating the unpredictable currents of the global market.
In conclusion, Starbucks’ robust Q4 earnings demonstrate its resilience in the face of varying consumer preferences across the US and China, showcasing the company’s strategic adaptability in a dynamic global market.
Source: Yahoo Finance