Starbucks profits boosted by China business recovery

Starbucks Corp exceeded Wall Street predictions yesterday for quarterly earnings, primarily due to a strong recovery in business within China. However, shares dropped approximately 6% in after-hours trading, as the company did not raise its 2023 guidance. Consumer mobility and spending in China have significantly improved since most of the country’s COVID-19 restrictions have been lifted.

Despite a 29% drop in sales in the previous quarter, the world’s largest coffeehouse chain reported a 3% increase in China’s comparable sales during the second quarter, which ended on April 2. This resulted in a 7% rise in international sales, more than double the 2.94% increase that the average analyst projected, as per Refinitiv data.

While the recovery in China was greater than expected, Chief Financial Officer Rachel Ruggeri stated that average weekly sales in the country would experience a more moderate pace in the second half due to factors such as uncertainty surrounding consumer behaviour and international travel. As a result, the company maintained its full-year guidance.

Many restaurant shares have surpassed the S&P 500 Index this year, with companies such as McDonald’s Corp reporting strong quarters. Some Starbucks investors might have taken profits following a 16% increase in Starbucks’ stock within the past five weeks, according to Edward Jones analyst Brian Yarbrough.

Globally, the Seattle-based company saw comparable sales rise by 11%, considerably beyond analysts’ expectations of a 7.36% increase. The earnings release revealed that customers visited Starbucks more frequently and spent more per visit. Excluding one-time items, the company achieved earnings of 74 cents per share, surpassing estimates of 65 cents.

Starbucks, which typically caters to younger, wealthier customers who are less concerned about inflation, has focused on cold and customisable beverages. This strategy has enhanced traffic in the US, resulting in a 12% surge in comparable store sales in its North American market.

The coffee chain continues to expand its customer rewards programme which currently has 30.8 million active members in the US, representing a 15% increase compared to last year, as per the earnings release. Furthermore, the company has opened additional cafes, including more than 100 new stores in North America and over 360 internationally, reports Channel News Asia.