Starbucks Reports Mixed Fiscal Third-Quarter Results: Beats on Earnings but Misses on Revenue and Same-Store Sales

Starbucks Corporation, the Seattle-based coffee giant, announced mixed results for its fiscal third quarter on Tuesday. The company managed to exceed expectations for earnings but fell short in terms of revenue and same-store sales. Despite these mixed results, CEO Laxman Narasimhan reaffirmed the company’s confidence in its growth narrative for fiscal 2023.

Key Financials

The quarterly earnings showed:

• Earnings per share: $1 adjusted vs. 95 cents expected by analysts surveyed by Refinitiv, beating the expectations
• Revenue: $9.17 billion vs. $9.29 billion expected by Wall Street and $9.3 billion Bloomberg consensus estimates
• Same-store sales growth: 10% vs. StreetAccount estimates of 11% and analysts’ expectations of 11.12%
• Operating margin expansion to 17.3% from 15.9% a year earlier, driven by improvements in pricing and productivity

North American Performance

In North America, Starbucks reported:

• Same-store sales growth of 7%, missing estimates of 8.4% and 8.2%
• Customer traffic grew 1% in the quarter, lower than expectations of up 3%
• Cold drinks account for three-quarters of U.S. beverage orders
• The average ticket size increased by 6% in the region

International Performance

Outside North America, the performance was as follows:

• Same-store sales increased by 24%, falling short of estimates of 24.2% and 24.5%
• China’s same-store sales skyrocketed 46% in the quarter, higher than estimates of up 41.8%
• Foot traffic in China was up 48%, but the average ticket size dropped by 1%

Expansion and Loyalty Program

During the quarter, Starbucks continued to expand, opening 588 new stores, bringing its total store count to 37,222 stores. The U.S. and China constitute 61% of the company’s portfolio, with 16,144 and 6,480 stores, respectively. Starbucks’ loyalty app, a significant asset in building customer retention, gained momentum, with the number of total active members increasing by 15% year-over-year to 31.4 million.

Challenges and Responses

International same-store sales, though positive, fell slightly short of expectations. The company is looking into various strategies to enhance customer experience and spending overseas, focusing on localization and adapting to changing consumer needs.

Loyalty Program Growth

The company’s loyalty app continues to thrive even after changes that went into effect on February 13. The 15% year-over-year growth in total active members to 31.4 million demonstrates Starbucks’ ability to engage and retain customers through effective loyalty programs.

Final Remarks

The mixed results reflect both the opportunities and challenges that Starbucks faces in a rapidly changing consumer landscape. Improved demand in China and innovations in beverage offerings have fueled growth, but softer-than-expected sales growth indicates room for improvement. CEO Laxman Narasimhan has emphasized the company’s strategic paths to drive growth and margin improvement, positioning Starbucks to create long-term shareholder value.

CEO Laxman Narasimhan’s leadership and strategies seem to be steering the company in a positive direction despite some shortfalls in the quarterly report. His remarks on the earnings call express confidence and outline a vision for Starbucks’ future growth. This is only his second earnings report since taking the helm from Howard Schultz on March 23, following a nearly six-month immersion experience at the company.

Check out Starbucks’ official website for more information on their financial reports.