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MILAN – The Nasdaq responded positively to Starbucks’ third quarter results, released at the close of markets on Tuesday, 29 July. Starbucks’ shares rose by 3.7% to $96.40 after the Seattle-based company reported revenues that exceeded estimates. The company reported it had opened 308 new stores, finishing the period with 41,097 stores (53% company-operated and 47% licensed), with 61% of them in the U.S. and China.
Starbucks said revenue rose 4% to $9.5 billion in in its fiscal third quarter. That was better than the $9.3 billion Wall Street expected, according to analysts polled by FactSet.
But same-store sales fell 2% in the April-June period. That was more than the 1.5% decline expected, per Bloomberg data, marking an acceleration from the previous quarter’s 1% drop, and it was the sixth straight quarter that the Seattle-based company reported lower same-store sales.
Results for North American stores were a bright spot, with sales sinking by less than expected and comparable transactions improving for a third consecutive quarter. However, operating margins on North American stores were 7.7% lower year-over-year; significantly worse than the declines seen in international stores, which saw a 2% decline in operating margin year-on-year.
US same-store sales fell 2%, in line with the prior quarter’s drop but less than the 2.5% drop that had been forecast. That was driven lower by a 4% decline in comparable transactions. Wall Street expected a sharper 4.5% decline.
For the first time since late 2023, sales increased in China, the company’s second-biggest market with about 7,800 stores. Starbucks reported same-store sales growth of 2% for the quarter. Transactions climbed 6%, but average ticket fell.
Starbucks China cut the prices of several iced and tea-based drinks last month to head off competition from local chains such as Manner Coffee and Luckin Coffee.
Starbucks’ profits tumbled far more than anticipated in its latest quarter as the costs of a turnaround effort come into sharper view. The world’s biggest coffee house chain said its net income fell 47% to $558 million in the April-June period. Adjusted for one-time items, its earnings fell 46% to 50 cents per share for the quarter. That was lower than the 65 cents analysts had forecast.
The operating profit margin declined by 6.8 percentage points year on year to 9.9% in the quarter, driven in part by labour costs and a splashy conference for store managers last month, where the company hosted 14,000 store managers and regional leaders.
CEO Brian Niccol said in the release the company has “fixed a lot and done the hard work on the hard things to build a strong operating foundation, and based on my experience of turnarounds, we are ahead of schedule.”
To bring back customers, Starbucks is rolling out its “Green Apron Service” program across 11,000 North American stores next month, which emphasizes customer interactions. The program will also feature an algorithm meant to deliver drinks to café and drive-through customers in fewer than four minutes. Executives have said that the program tested successfully, leading the company to accelerate its rollout. Niccol called it “Starbucks’ biggest investment ever in operating standards and customer service” in a call with analysts on Tuesday.
Starbucks has been hiring more baristas and employing new hospitality standards to entice customers back into stores after more than a year of falling sales.
The chain is also building fewer new U.S. locations, instead focusing on improving its current cafes. In recent years, Starbucks had removed seats from many of its cafes, citing the shift to mobile ordering and drive-thru transactions.
The chain also promised a “wave of innovation” into next year, including protein cold foam, a refreshed baked-goods selection, a test of coconut-water-based tea and a new dark roast.
