The American multinational chain Starbucks Coffee Store and its logo are displayed.
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Starbucks announced Wednesday that its quarterly same-store sales had returned to growth for the first time in almost two years, demonstrating that its recovery strategy was making it possible to win back lost customers.
The coffee chain’s global same-store sales increased 1%, driven by international markets. Its same-store sales in the United States remained stable in the quarter, but turned positive in September. Wall Street forecast a 0.3% decline in global same-store sales and a 0.9% decline in U.S. same-store sales.
“We’ve been running our ‘Return to Starbucks’ strategy for a year and it’s clear that our turnaround is coming to fruition,” CEO Brian Niccol said in a statement.
National same-store sales turned positive in September and the company maintained that momentum through October, Niccol said during the company’s conference call. However, CFO Cathy Smith cautioned analysts against celebrating too early.
“Recoveries are difficult to predict and, although we have good reason to believe that our American society [same-store sales] is expected to grow throughout the year, we also know that recoveries are not always linear,” she said.
The company suspended its annual guidance a year ago and does not plan to issue a short- or long-term outlook until an investor day scheduled for late January.
Shares of Starbucks rose 2% in extended trading.
Here’s what the company reported for the quarter ended September 28 versus what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: 52 cents adjusted versus 56 cents expected
- Income: $9.57 billion versus $9.35 billion expected
The coffee giant reported fourth-quarter net income attributable to Starbucks of $133.1 million, or 12 cents per share, down from $909.3 million, or 80 cents per share, a year earlier.
Excluding restructuring costs, litigation settlements and other items, Starbucks earned 52 cents per share. During the quarter, the company closed 627 locations and laid off approximately 900 non-sales employees as part of a restructuring plan.
In addition to the restructuring plan, Starbucks has invested heavily in the workforce, including hiring assistant store managers at many North American cafes. Additional labor costs weighed on its operating margin this quarter.
Net sales rose 5% to $9.57 billion.
To revive its U.S. sales, Starbucks focused on improving the in-store customer experience and reducing service times to less than four minutes per order. More than 80 percent of company-run locations have an average service time of four minutes or less, although the chain saw an increase in traffic after launching its fall menu, according to Niccol.
The company’s marketing efforts have shifted from promotions and limited-time items to highlighting its coffee and trending innovations, like protein-rich cold foam.
This strategy has succeeded in winning back certain American customers. Smith said the number of 90-day active Starbucks Rewards members increased 1% quarter-over-quarter and year-over-year.
Outside of Starbucks’ home market, same-store sales rose 3%, fueled by a 6% increase in traffic.
In China, the company’s second-largest market, same-store sales rose 2%, driven by a 9% increase in traffic. Under pressure from local competitors offering cheaper drinks, Starbucks lowered prices on many of its frozen drinks to lure back customers.
The company is also considering selling a stake in its China operations after years of declining sales in a competitive market. Niccol previously told CNBC’s Jim Cramer that the company valued its China business at more than $10 billion.
“Strategically, we have received very strong interest from several high-quality partners, all of whom see significant value in the Starbucks brand and team,” Niccol said Wednesday. “We expect to retain a significant stake in Starbucks China and remain confident in the region’s long-term growth potential.”