Starbucks (SBUX) brewed up some fiscal Q4 earnings early Thursday morning. While it beat most estimates, it was a tale of two countries.
US consumers are still willing to splurge for their pumpkin spice and chai tea lattes, but Chinese consumers are tightening their wallets.
Starbucks' overall revenue is up 11% to nearly $9.4 billion, higher than the $9.28 billion expected from Wall Street, while adjusted earnings per share came in at $1.06, which also beat estimates of $0.97. Global same-store sales jumped 8%, driven by a 4% increase in ticket size and a 3% increase in traffic.
Shares of the coffee giant rose more than 10% after the market opened.
In North America and the US, consumers were willing to pay more for their premium seasonal beverages and added a record amount of food to their orders. Same-store sales were up 8% in the US.
"Heightened promotional activity plus the earlier launch of Pumpkin and fall drink lineup likely supported traffic in a difficult discretionary spending backdrop," Baird analyst David Tarantino said in a note to clients ahead of earnings. This past quarter marked the pumpkin spice latte's 20th anniversary.
On a call with investors, CEO Laxman Narasimhan said while the team is "navigating the uncertain economies and markets around the world," customer demand and sentiment remain strong. It reflects Starbucks' spot in customers' routines and "the long-term durability of this business," he added.
Its international business saw weakness with ticket size falling lower, as coffee drinkers in China pull back amid a slowing economy.
International same-store sales jumped 5%, less than the 6.29% expected by Wall Street. China's same-store sales grew 5%, beating estimates. Though foot traffic increased 8%, people ordered less, with the average ticket size falling by 3%.
Narasimhan said the team felt good about the "overall returns" in China, adding that he is "heartened by how the business is coming together despite all the headwinds that have been there for the last couple of years."
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Starbucks has invested more in its international business over the years. It recently announced its 20,000th location outside of North America and plans to expand to 9,000 stores in China over the next two years with nearly 1,000 new stores per year.
At the end of last quarter, stores in the US (16,352 locations) and China (6,806 locations) made up 61% of the company’s global portfolio.
The company added 816 new stores last quarter, bringing the total to 38,038 stores, with 52% company-operated and 48% licensed locations. Its stores have benefitted from customers going back to pre-COVID routines, and China easing its strict lockdowns in 2023.
Its loyalty program also continues to grow. In Q4, active reward members in the US, who typically spend more, jumped 14% year over year to 32.6 million. In China, there are now 21 million reward members, up 22% compared to last year.
Earnings rundown
Here's what Starbucks reported, compared to Wall Street expectations for Q4, based on Bloomberg consensus estimates.
Revenue: $9.37 billion versus $9.28 billion expected
Adjusted earnings per share: $1.06 versus $0.97 expected
Same-store sales growth: 8% versus 6.31% expected
North America and US same-store sales growth: 8% versus 6.30% expected
International same-store sales: 5% versus 6.29% expected
China same-store sales: 5% versus 4.64% expected
Traffic growth same-store sales: 3% versus 3.11% expected
North America: 2% versus 1.45% expected
International: 6% versus 5.67%
Ticket growth: 4% versus 3.31% expected
North America: 6% versus 5.63% expected
International: -1% versus 5.05% expected
For fiscal year 2024, Starbucks expects global same-store sales to grow 5% to 7%, down from its previous long-term guidance of 7% to 9%. In China, sales growth is expected to be between 4% and 6% in Q2 through Q4.
CFO Rachel Ruggeri said on the call to expect total revenue growth to be on the lower end of the 10%-12% range, and expect EPS growth to be in the 15%-20% range.
General view of Starbucks' Coffee Innovation Park on Sept. 19, 2023, in Kunshan, Jiangsu Province of China. (VCG/VCG via Getty Images) ·(VCG via Getty Images)
Stocks of food and beverage companies have been hit by uncertain consumer sentiments and fears about weight loss drugs. Shares of Starbucks are down more than 8% this year, compared to the S&P 500's (^GSPC) gain of 9.5%.
In a note to clients, Bernstein analyst Danilo Gargiulo said investors have "expressed skepticism" in Starbucks' "ability to meet management's ambitious goals."
Post-COVID recovery and consumer spending levels are still uncertain, while the labor shortage is ongoing. The company's focus on investing in expensive equipment upgrades to increase store productivity may not produce the desired results, added Gargiulo.
Starbucks CEO Laxman Narasimhan took the stage on Thursday to announce an update on the company's Reinvention Plan strategy.
CEO Narasimhan introduces his take on Starbucks' long-term growth strategy
CEO Narasimhan, who took the helm in April, put his take on the plan first introduced last September by former CEO Howard Schultz. At the meeting, he said it is the "next step in the refounding, building on the mission and laying out our long-term strategy."
Starbucks said it plans to implement a $3 billion dollar efficiency program over the next three years — $2 billion of which Starbucks says can be saved outside of the store. It also aims to reinvigorate employee culture, a goal Narasimhan set at the start of his tenure, and double workers' hourly incomes compared to fiscal year 2020 by fiscal year 2025.
Through this updated plan, the company expects long-term sales growth of 5% or greater, revenue growth of 10% or greater, and earnings per share growth of 15% or greater.
"Commentary regarding $3B in gross cost savings over the next three years also suggests SBUX could reduce the [long-term] top-line guide this afternoon while maintaining 15%-20% EPS growth — a scenario considered the most credible outcome," Citi analyst Jon Tower wrote in a note.
Other key areas of the plan include elevating the brand, strengthening and scaling digital, and becoming truly global.
The company plans to further re-evaluate its US store portfolio, similar to what investors saw with the seven store closures in San Fransisco recently, and grow net new stores by 4% in fiscal year 2024 to reach 20,000 total stores.
Globally, Starbucks is aiming to increase its global footprint to 55,000 stores by 2030, with an average of eight new stores a day. Over the next three years, the beverage giant said it expects roughly a third of its earnings growth annually to come from its international segment.
Inside the stores, the company aims to improve operations. North America president Sara Trilling said the delivery business is "expected very soon" to reach $1 billion in sales. To meet that demand, the company expects to serve nearly 40% of delivery orders with delivery-only stores, which currently only make up less than 1% of its portfolio.
Starbucks chief marketing officer Brady Brewer also noted that consumers can expect "new grab-and-go food products" and "a widening snack selection" as snacking demand continues to grow and the company tries to entice customers to visit stores more often.
Rewards and partnerships are getting a revamp, too, with a goal of doubling active reward members to 75 million new members in the next five years.
After the successful launch of its partnership with Delta last October, the company teased a wider reward program, called Rewards Together, in the next six months. Starbucks also plans to extend its partnership with Microsoft (MSFT) to better understand consumer behavior with AI capabilities, collaborate with Apple (AAPL) to experiment with technology that will assist employees, and reimagine the customer experience with Amazon One (AMZN) and Just Walk Out technology.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].