Starbucks Earnings Beat, Fueled by Strong U.S. Cold Beverage Sales, But Its Shares Drop on Weak China Outlook

Scott Mlyn | CNBC
  • Starbucks topped Wall Street's estimates for its fiscal third-quarter earnings and revenue.
  • The company also raised its forecast for fiscal 2021 earnings per share, despite also predicting slowing same-store sales growth in China, its second-largest market.
  • Shares of Starbucks have risen 17% this year, giving it a market value of $148 billion.

Starbucks on Tuesday reported soaring cold drink sales in the United States, fueling an earnings and revenue beat for the company.

But the coffee chain also warned of a slower recovery in China, its second-largest market. It lowered its full-year forecast for the country's same-store sales growth, despite raising its overall outlook for fiscal 2021 earnings per share.

The stock fell about 3% in extended trading after hitting a 52-week high before the markets closed.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.01 adjusted vs. 78 cents expected
  • Revenue: $7.5 billion vs. $7.29 billion expected

The coffee giant reported fiscal third-quarter net income of $1.15 billion, or 97 cents per share, up from a net loss of $678.4 million, or 58 cents per share a year earlier.

Excluding restructuring costs and other items, Starbucks earned $1.01 per share, topping the 78 cents per share expected by analysts surveyed by Refinitiv.

Net sales rose 78% to $7.5 billion, beating expectations of $7.29 billion. Worldwide, same-store sales surged 73%. A year ago, the company's global same-store sales plummeted 40% during the quarter as the global pandemic prompted in lockdowns in some regions.

In the U.S., Starbucks' largest market, same-store sales climbed 83%. On a two-year basis, the market's same-store sales rose 10%. Nearly three-quarters of the company's drink sales came from cold beverages, like its Nitro cold brew. Over half of all sales came from loyalty program members.

Outside of the U.S., Starbucks' same-store sales jumped 41%, fueled by 55% growth in customer traffic.

"It's important to remember that the vast majority of international markets in which we operate are behind the U.S. in terms of both vaccination and mobility, so revenue recovery is predictably lagging in these markets," CFO Rachel Ruggeri said.

For example, executives said that the virus resurgence in Japan, which led to a declaration of a state of emergency, hurt traffic there during the quarter.

China reported same-store sales growth of 19%. A year ago, the country's same-store sales fell 19%.

"The health of our business in China is strong and we've never been more confident in the long-term growth opportunity," CEO Kevin Johnson told analysts.

For fiscal 2021, the company raised its earnings per share outlook to a range of $2.97 to $3.02, up from its prior range of $2.65 to $2.75. On an adjusted basis, it's expecting earnings per share of $3.20 to $3.25, up from the prior range of $2.90 to $3. The fiscal year includes a 53rd week this year, which is expected to add 10 cents to the company's earnings per share.

Starbucks also narrowed its outlook for global same-store sales growth for the full year. It now expects that metric to rise 20% to 21%, compared with a prior range of 18% to 23%.

The company also predicted slowing same-store sales in China, where it previously predicted growth of 27% to 32%. Now, however, it's forecasting same-store sales growth of 18% to 20%. Next quarter, it expects flat same-store sales for the country.

"Our previous comp guidance has assumed a shorter timeframe for the lifting of travel restrictions and also less of the uncertainties that we have faced in the market, and, hence, we are adjusting our comp guidance to reflect the uncertainties," said Belinda Wong, CEO of Starbucks China.

Wong emphasized that the volatility in China is temporary and that the company expected a non-linear recovery.

In the United States, Starbucks now expects sales growth of 21% to 22% for cafes open at least 13 months, on the higher end of its prior range of 17% to 22%.

Johnson also said that Starbucks has locked in the price of its coffee beans for the next 14 months, protecting it against the impact of higher prices related to colder temperatures in Brazil.

However, the company is expecting to see rising inflation next quarter and in fiscal 2022 in other areas, like labor. Ruggeri said that the company has flexibility with pricing and can push customers to buy more cold drinks, which tend to be more expensive, or encouraging customization, like adding an espresso shot.

Read the full earnings report here.

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