Shares of Starbucks Corp. experienced a decline after hours on Tuesday following the release of their third-quarter report. Although the coffee chain showed a significant rebound in China, their same-store sales fell short of expectations.
Financial Highlights
In the fiscal third quarter, Starbucks reported a net income of $1.14 billion, or 99 cents per share, compared to $912.9 million, or 79 cents per share, in the same quarter of the previous year. The company’s adjusted earnings per share, after accounting for restructuring and impairment costs, amounted to $1.
Revenue for the quarter increased by 12.5%, reaching $9.17 billion compared to $8.15 billion in the prior-year quarter. Same-store sales worldwide experienced a growth of 10%, with a 7% gain in North America. Internationally, same-store sales surged by an impressive 24%, with a remarkable 46% gain in China.
Analysts’ Estimates
According to FactSet’s poll of analysts, Starbucks was expected to report adjusted earnings per share of 95 cents on revenue of $9.29 billion, with an estimated same-store sales growth of 11%.
Operating Margins and Factors Affecting Growth
Operating margins saw an increase from 15.9% to 17.3% compared to the previous year. This improvement was primarily attributed to higher prices and productivity, although it was partially offset by increased spending on employee wages and benefits.
Market Reaction
After the release of the earnings report, shares of Starbucks declined by 0.7% in after-hours trading on Tuesday. It is noteworthy that Starbucks shares have remained relatively stable throughout the year.
Wall Street’s Concerns
While Starbucks executives have asserted that customers view coffee as an affordable luxury worth indulging in despite inflation, Wall Street remains cautious about the company’s future prospects in North America and China. The uncertain economic recovery in China, coupled with slowing same-store sales, has contributed to this hesitancy.
Focus on China and Market Expansion
Analysts from UBS emphasized that demand in the U.S. was solid, but the primary focus would be on demand in China. Additionally, analysts, like John Zolidis from Quo Vadis, highlighted investors’ attention on Starbucks’ efforts to establish more drive-through locations in the U.S., as well as the potential benefits from higher-priced cold drinks and customizable orders.
Employment Issues
In addition to financial performance, Starbucks continues to grapple with conflicts alongside its unionized employees. Bargaining between the company and the unionized workers has reached a stalemate. Recently, Starbucks faced accusations of banning Pride-themed decorations, which the company adamantly denied.
Despite facing challenges, Starbucks remains an influential player in the coffee industry, continually striving to adapt and grow both domestically and internationally.
