Starbucks shares surge on stronger sales

The company’s U.S. same-store sales were its best in three years, thanks to more transactions.
Photograph courtesy of Starbucks

Starbucks’ stock price rose more than 7% on Friday after the company reported stronger-than-expected same-store sales, in part because consumers were ordering more cold drinks and coming in during the afternoons.

The Seattle-based coffee giant said its same-store sales rose 7% in the U.S., with 3% transaction growth, in the company’s fiscal third quarter ended June 30. It was the best performance for the company’s domestic market in three years.

The chain’s U.S. same-store sales improved in all dayparts, CEO Kevin Johnson said on the company’s earnings call Thursday, including in the afternoon for the first time in three years.

Meanwhile, same-store sales rose 5% in China, with transaction count up 2%. China is a closely watched market that the company views as key to its future growth prospects. Globally, comparable-store sales rose 6%, including a 3% increase in transaction count.

The company said that delivery growth was a major catalyst for its performance in China.

“By all measures, Q3 was a very strong quarter,” Johnson said. The results led Starbucks to increase its financial expectations for the year.

The company’s U.S. performance was driven in part by its cold drinks, which tend to lure afternoon customers. Those customers had been reducing their visits to Starbucks in recent quarters, a big reason the company’s transaction count has been declining.

Starbucks said that its Nitro Cold Brew is on track to be introduced in all U.S. company locations by the end of the year. Executives said on the earnings call that its iced espresso beverages, including its Cloud Macchiato and Starbucks Refreshers, both performed well. “We are delivering exciting new beverages that are resonating with customers,” Johnson said.

Digital sales have also proved to be important for the chain. The company’s popular loyalty program, Starbucks Rewards, now has 17.2 million active members in the U.S., up 14% over the past year.

That group accounted for 42% of the money spent in U.S. locations. That, plus adoption of mobile order and pay and the company’s personalized marketing efforts, contributed 2% to Starbucks’ U.S. same-store sales.

“We are seeing evidence of improved engagement across our Starbucks Rewards member base,” Johnson said.

The company has also worked to improve its efficiency inside the stores to improve its speed and increase the number of customers it can serve.

Roz Brewer, the chain’s chief operating officer, said that the company started a program to increase its efficiencies about 12 months ago.

“We’ve reduced the number of tasks in the stores, roughly taking about 12 hours of work in terms of tasks at the store level,” Brewer said.

Starbucks does have some hope for future growth with delivery. The company offers the service with Uber Eats in 11 markets and is planning to expand that nationwide by early next year.

Company executives on the earnings call said that delivery comes with larger orders and is incremental, but has not had the impact on same-store sales in the U.S. that the service has in China.

Revenues at the company rose 8.1% to $6.8 billion. Net earnings rose 61% to $1.4 billion, or $1.12 per share, from $852.5 million, or 61 cents.

The company raised its expectations for full-year same-store sales growth to 4%, from a range of 3% to 4%, and said it would generate revenue on the top end of its previous 5% to 7% expectation. It also raised expectations for store count growth and earnings.

UPDATE: This story has been updated with more details from the company’s earnings call.

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