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Starbucks reports fastest sales growth in three years

Jul 26 2019 20:00
Leslie Patton and Anne Riley Moffat

Forget that hipster coffee shop: Americans are falling back in love with Starbucks.

Just one year after a spring of tough headlines and uninspiring results had bulls moving to the side lines, the coffee chain on late Thursday logged its fastest global sales growth in three years, bolstering the belief the behemoth is back. China was partially behind the boost, but so was the US, where comparable-store sales soared 7%. Shares rose to a record.

"This reminds me of the Starbucks of a few years ago," said Edward Jones analyst Brian Yarbrough. "It's tough to poke many holes."

The strong report comes one year after long-time leader Howard Schultz retired from the chairman’s job and left the company, putting decision-making squarely in the hands of CEO Kevin Johnson, who’d been in the post for about a year at that point.

Johnson got right to work, bringing life back to an aging brand that had started to lose its cachet among the hipper, smaller chains sprouting up in its shadow.

His playbook included closing under-performing locations in densely penetrated US markets, turning over some foreign regions to licensees and revamping the chain’s loyalty program.

He has also expanded food offerings to compete with trendy salad shops and found ways to launch the new drinks that Gen Z and millennial customers want, like Nitro cold brew and high-protein offerings, in as little as 100 days. In the past that may have taken up to 18 months.

On Thursday, the company reported a blistering 6% gain in same-store sales worldwide - the most since 2016 and well above the 4.2% projection compiled by Consensus Metrix.

Starbucks even boosted its outlook: It now expects adjusted earnings of $2.80 to $2.82 a share this year, up from $2.75 to $2.79 a share previously.

Starbucks, "we underestimated you," a Morgan Stanley analyst wrote.

The shares surged as much as 6.2% on Friday New York. Starbucks had already gained 41% so far in 2019 before the results, double the rise in the S&P 500 index, putting it in the top fifth of S&P 500 stocks.

"It's a very solid report," Yarbrough said. "Even though the stock has done well, I think the stock goes higher."

The company has been changing course in non-key markets, and it has plans to continue. Seattle-based Starbucks lowered its forecast for new stores in its European division this fiscal year to 300, down from the previous target of 400.

Last year, the company scaled back its European corporate operations and sold some of the market to licensee Alsea SAB. It’s part of Starbucks' move to home in on the US and China.

Food is a big part of that equation, especially when it can be brought right to buyers’ doors. Starbucks will be expanding delivery throughout the US next year after an initial trial in several large cities.

The company is also offering more afternoon-friendly fare, and the post-lunch period posted growth for the first time in three years in the US, Johnson said on a conference call. In China, digital ordering and delivery is also expanding, which helped sales in the quarter.

"Their brand is obviously resonating with the consumer," said Peter Saleh, an analyst at BTIG. "These numbers are very impressive. They beat globally, but they also beat in every region. They seem to have gotten the business a little bit back on track."

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