Starbucks Rebounds in China as Its Q3 2023 Sales Miss Estimates

Starbucks on Tuesday, Agust 1, 2023, reported its financial results for its 13-week fiscal Q3 that ended July 2, 2023. The coffeehouse chain’s quarterly earnings exceeded analysts’ projections but its same-store sale fell short of estimates. Despite a sharp rebound in sales in China, demand in North America and overall international markets has decreased.

“I am pleased with our third quarter performance, which beat our expectations, including our International segment. Our performance was bolstered by the progress we are making against our strategies, specifically our Reinvention Plan, and its unfolding into tangible financial results, as we delivered earnings growth of 19% well above our revenue growth of 12%,” commented the company’s chief financial officer Rachel Ruggeri. “The momentum we have built and strength we are seeing globally, gives us the confidence and optimism to close our fiscal year strong.”

Despite moves to draw in a younger, wealthier clientele in the United States with the launch of new products, quarterly transactions increased by just 1% – a step down from the 6% reported in Q2. Same-store sales in North America grew 7%, missing estimates of 8.4%. The company’s China market, its second-largest market, recorded a sharp recovery from the slump caused by Covid restrictions last year. The increase in comparable store sales internationally can be attributed to the performance of the China market.

“International comparable store sales increased 24%, driven by a 21% increase in comparable transactions and a 2% increase in average ticket; China comparable store sales increased 46%, driven by a 48% increase in comparable transactions and a 1% decline in average ticket,” the report reads in part.

During the earnings call following the release of the report, the company maintained its revenue growth projection of 10% to 12% for the 2023 fiscal year. It raised its adjusted earnings-per-share (EPS) growth outlook from the low end of 15% to 20% to 16% to 17%.

EPS came in at $1 adjusted, higher than the 95 cents expected by Wall Street analysts. Analysts had projected revenue of $9.29 billion, $9.17 billion was reported. Q3’s net income attributable to Starbucks was $1.41 billion, (99 cents per share), up from $912.9 million (79 cents per share) a year earlier.

Starbucks’ operating margin benefited from improved productivity and higher menu prices; it rose to 17.3% from 15.9%. Net sales rose 12% to $9.17 billion, as same-store sales increased by 10%, narrowly missing StreetAccount estimated 11%.

Overall, demand in the domestic market is still strong, with customer traffic growing by 1% in Q3. Further, customers are reportedly buying more breakfast sandwiches with their beverages and paying for more expensive additions like cold foam to their orders.