Farming & Food

Starbucks shares climb following quarterly sales boost

World’s largest coffee chain is battling intense competition in the United States

Starbucks’ focus on cold drinks such as nitro cold coffee to lure customers during slow afternoons helped the chain.

Fri Nov 2 2018 - 08:08

Starbucks on Thursday reported a better-than-expected rise in quarterly sales at established stores as it benefited from higher prices in the United States and a rebound in China, sending its shares up nearly 9 per cent.

The world’s largest coffee chain is battling intense competition in the United States, its largest market, from both high-end coffee shops and fast-food chains.

In response, the company has been closing underperforming stores, while licensing its retail business to Nestle for about $7 billion as part of its plan to streamline its operations.

Starbucks’ focus on cold drinks such as nitro cold coffee and caffeinated fruity beverages in the quarter to lure customers during slow afternoon hours helped it post the best growth in its drinks business for the year, the company executives said on a call.

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Sales at established US cafes in the fourth quarter grew 4 per cent, well above analysts’ expectations, while the amount spent by customers on average rose 5 per cent, helping the company post its best US sales growth in five quarters.

"As we enter fiscal 2019, we are executing against a clear growth agenda, with a focus on our long-term growth markets of the US and China," chief executive Kevin Johnson said.

Same-store sales in China also rose 2 per cent, reversing a decline from the third quarter and driving a 3 per cent rise in global comparable store sales.

The coffee chain’s business in China, its fastest-growing market in recent years, slowed significantly last quarter amid fierce competition and stricter regulations on delivery services.

Since then the company has partnered with Alibaba Group Holding to deliver its coffee in Chinese cities, a deal that a company executive said will be “rocket fuel” for Starbucks’ business in the country.

“While we still have work to do, these results provide encouraging evidence that our plan is working,” Johnson said on the call.

Total net revenue rose to $6.30 billion, beating expectations of $6.27 billion, according to IBES data by Refinitiv.

Excluding items, the company earned 62 cents per share also beating expectations of 60 cents, while its adjusted profit forecast for fiscal 2019 was in line with expectations.

Starbucks shares were up 7.7 per cent at $63.20 in after-hours trading, adding to the year’s modest growth of 1.5 per cent. – Reuters

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